CANADA FX DEBT-C$ approaches 7-month low on economic worries

Tue Feb 19, 2013 9:25am EST

* C$ drops to session low after weak wholesale data
    * C$ hits C$1.0135 vs US$, weakest since July 2012
    * Bond prices rise across curve

    By Andrea Hopkins
    TORONTO, Feb 19 (Reuters) - The Canadian dollar fell to its
lowest since July against its U.S. counterpart on Tuesday as
weak economic data and concerns about U.S. budget talks, the
Canadian housing sector and energy prices weighed.
    The Canadian dollar declined to a session low of
C$1.0135 versus the U.S. dollar, or 98.67 U.S. cents, after
Canadian wholesale trade fell more sharply than expected in
December and data showed foreigners reduced their holdings of
Canadian securities. 
    That brought the currency, already down from Friday's North
American session close at C$1.0061 versus the U.S. dollar, or
99.39 U.S. cents, to its weakest point since July 26. Monday was
a holiday in most of Canada and the United States.
    Camilla Sutton, chief currency strategist at Scotiabank in
Toronto, said three negative factors were pushing the Canadian
dollar lower in the short term, starting with U.S. budget
worries that are once again on the horizon.
    "The threat of sequestration being triggered March 1 is
weighing on the U.S. growth outlook, so that would be negative
for (the Canadian dollar)," Sutton said. "The second (negative
factor) is we seem to have a global focus on the Canadian
housing sector and how that could potentially negatively impact
GDP.
    "Thirdly, I think the ongoing focus on the energy sector in
Canada, and how, even though the spread between Brent and
Western Canadian Select is off its high, it's still elevated on
a historical basis."
    While U.S. legislators temporarily averted a series of
automatic spending cuts and tax hikes, the compromise on
across-the-board spending cuts, known as sequestration, only
postponed until March 1 a resolution to the congressional budget
fight.
    The U.S. budget crisis typically raises fears that spending
cuts and tax hikes will slow U.S. growth, which in turns hurts
the economy in Canada, whose largest trading partner is the
United States.
    Canada's slowing housing sector is also expected to weigh on
economic growth as homebuilding and home buying cools from the
red-hot levels of early last year. While many economists believe
the sector will manage a soft landing, others fear a crash.
    Scotiabank's Sutton said the Canadian dollar should maintain
a range between C$1.0080 and C$1.0160 on Tuesday.
    Canadian government bond prices rose across the curve, with
the two-year bond up 2.5 Canadian cent to yield 1.120
percent and the benchmark 10-year bond rising 20
Canadian cents to yield 1.994 percent.
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