CANADA FX DEBT-C$ hits 7-month low as growth fears hurt commodities

Thu Feb 21, 2013 4:38pm EST

* C$ at C$1.0187 versus US$, or 98.16 U.S. cents
    * Greenback exhibits broad strength as risk appetite wanes
    * Commodity price fall hurts C$, equity markets add pressure

    By Alastair Sharp
    TORONTO, Feb 21 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Thursday, breaking through
C$1.02 to the greenback for the first time since July, as fears
about global growth hit commodity prices and related currencies.
    The currency fell for a fifth straight day, as investors
have drilled in on a string of dismal recent data releases that
paint a drab picture of the domestic economy.
    "We've had a weakening in the domestic data that has now
started to weigh a little bit more on the Canadian dollar," said
Mazen Issa, a macro strategist at TD Securities, who said this
was a change from 2012 currency moves driven by fluctuating
appetite for risk.
    Worries about weak economic growth in Europe and the United
States also hurt global stock markets, with the greenback
benefiting from its status as a safe haven and the U.S. Federal
Reserve hinting at an eventual tightening of its accommodative
monetary policy. 
    "Equity markets are coming under pressure, commodities are
being heavily sold, and that's making its way into the currency
markets as well," said Blake Jespersen, a managing director of
foreign exchange sales at BMO Capital Markets.
    The Canadian dollar ended the session changing
hands at at C$1.0187 to the greenback, or 98.16 U.S. cents,
compared with C$1.0173, or 98.30 U.S. cents, at Wednesday's
North American close. It hit C$1.0208 at one point. 
    "The Canadian dollar should outperform some of the majors
but against the U.S. dollar it is still a weakening story,"
Jespersen said, suggesting the pair could test C$1.03 in coming
weeks.
    The loonie, as Canada's currency is colloquially known, hit
its strongest level against the British pound since
September 2011 after the Bank of England looked set to loosen
monetary policy. It also firmed against the euro. 
    But like its Australian counterpart, which is also heavily
influenced by commodity markets, it weakened against the
greenback. Oil prices hit a three-week low and gold recovered
only slightly off seven-month lows.  
    The global appetite for riskier assets weakened on data
showing European business activity had shrunk and a
bigger-than-expected rise in weekly U.S. jobless claims and
slower factory activity and consumer price inflation.
    The price of a two-year Canadian government bond 
was up 3 Canadian cents to yield 1.108 percent, while the
benchmark 10-year bond rose 28 Canadian cents to
yield 1.982 percent.
    The spread between Canadian and U.S. 2-year government bond
yields was near its year-to-date low of 85 basis points on
Thursday, down from 95 basis points seen in early January.
Analysts said this has been a factor reducing the appeal of
Canadian debt for many international investors.
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