CANADA FX DEBT-C$ in retreat as Fed stimulus concerns drag

Fri May 24, 2013 4:52pm EDT

* C$ at C$1.0321 vs US$, or 96.89 U.S. cents
    * Equity, currency markets volatile on Fed stimulus concerns
    * Oil prices end week 2 percent lower
    * Bank of Canada and GDP in focus next week

    By Solarina Ho
    TORONTO, May 24 (Reuters) - The Canadian dollar pulled back
against the U.S. dollar on Friday, in sync with weaker global
equity markets and other commodity currencies, as investors
worried that the U.S. Federal Reserve could rein in its stimulus
policy.
    Equity markets have hit their highest levels in years in
recent weeks, bolstered by stimulus measures taken by the Fed
and other central banks. Worries that the Fed may begin tapering
its $85 billion a month in bond purchases sent a gauge of global
equity markets to its second biggest daily loss of the year on
Thursday. 
    Meanwhile, oil prices ended the week 2 percent lower on high
supplies of U.S. crude and data that showed China's factory
activity shrank for the first time in seven months in May. 
    "All that, combined with overall U.S. dollar strength, has
served up a plate of weakness for the Canadian dollar virtually
all week," said Jack Spitz, managing director of foreign
exchange at National Bank Financial.
    "Equities are trading lower, commodities are trading lower,
volatility is trading higher, and these are all factors that
would normally be associated with Canadian dollar weakness. So
that's what we're seeing in the marketplace today."
    The Canadian dollar finished the session at
C$1.0321 against the U.S. dollar, or 96.89 U.S. cents, after
ending Thursday's North American session at C$1.0294, or 97.14
U.S. cents.
    The currency has shed nearly 3 percent since May 8, when it
closed at C$1.0030, its strongest finish since mid-February.
Currency strategists said it will likely push through C$1.04
toward its weakest level in 2012 of around C$1.0450.
    It was weaker against most other major currencies, except
for its commodities peers, the Australian and New
Zealand dollars, which were the weakest performers.
    Investors were also seen squaring positions ahead of a long
weekend in the United States and Britain.
    "The U.S. rally is somewhat intact, it's just taking a
little bit of a breather as we end the week here," said Blake
Jespersen, managing director, foreign exchange sales at BMO
Capital Markets.
    Looking ahead, the market will be focused on the Bank of
Canada's next scheduled interest rate decision on Wednesday and
Canadian quarterly GDP data at the end of the week, which is
expected to show a rebound in the first quarter, Spitz said.
    Prices for Canadian government debt were higher across the
curve, with the two-year bond adding one Canadian
cent to yield 1.031 percent and the benchmark 10-year bond
 up 9 Canadian cents to yield 1.951 percent.
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