CANADA FX DEBT-C$ sheds a cent, hits 2-week low as Fed roils markets

Thu Jun 20, 2013 4:50pm EDT

* C$ at C$1.0373 vs US$, or 96.40 U.S. cents
    * Fed signals end to stimulus, roils global markets
    * Canada currency hurt less than other commodity currencies
    * Canadian bond yields hit 18-month highs

    By Alastair Sharp
    TORONTO, June 20 (Reuters) - The Canadian dollar lost a full
cent in value against the U.S. dollar on Thursday as investors
piled into the U.S. currency a day after the U.S. Federal
Reserve pointed to an eventual end of its unprecedented economic
stimulus program.
    The currency hit its lowest point versus the greenback since
late May, and fell to its lowest level against the euro
 since late 2011 on its second straight day of major
declines. 
    The Fed's signal on Wednesday that the end of its massive
monthly bond-buying program is in sight led to a spike in bond
yields and a sharp retraction in global equity markets. The
prospect of an eventual tightening of U.S. monetary policy was
good for the greenback's valuation, however. 
    The loonie, as Canada's currency is colloquially known,
initially outperformed a string of major currencies, but later
succumbed to heavy selling pressure.
    "Canada really is just playing a little bit of catch-up with
some of the other majors that have lost considerable ground,"
said Don Mikolich, executive director of foreign exchange sales
at CIBC World Markets. 
    Fed Chairman Ben Bernanke said the U.S. central bank could
soon slow its bond-buying program and end it by the middle of
2014. 
    That pushed yields on Canadian government debt to 18-month
highs, following U.S. Treasuries higher as investors exited the
safe haven assets and seemingly moved en masse into the U.S.
currency.
    Traders were wary of predicting a ceiling for the yield
spike, as implementation of the Fed's stimulus-slowing measures
will likely keep pressure on bonds, especially at the longer end
of the curve.
    "The upcoming challenge will be to see what true yields will
look like in the 10s (10-year U.S. Treasuries)," Mikolich said.
    In addition to the Fed news, global stock markets were hit
by Chinese data that suggested waning growth, which also yanked
commodity prices and the currencies of major resource exporters
lower. 
    The Australian and New Zealand dollars were particularly
hard hit, while the loonie was protected in part by its
proximity to an improving U.S. economy. The Aussie hit its
weakest level against the loonie since September 2010.
    "The Canadian dollar may suffer a little bit less than some
of its commodity currency cousins ... but nevertheless a
stronger U.S. economy, while it's good for the Canadian economy,
it's obviously better for the U.S. economy," said Greg Moore, a
currency strategist at TD Securities.
    Housing and factory data out of the United States on
Thursday reinforced the view of a recovery in the world's
largest economy. 
    The Canadian dollar ended the session at C$1.0373
to the greenback, or 96.40 U.S. cents, compared with C$1.0273,
or 97.34 U.S. cents, at Wednesday's North American close.
    The 0.9 percent slip was the currency's biggest one-day drop
since May 22.
    The global selloff overshadowed data on Thursday that showed
household debt in Canada, relative to income, fell for the
second straight quarter. 
    The Bank of Canada has previously voiced concern about high
levels of consumer debt, but lately seems more confident this is
now under control. 
    Canada's two-year bond fell 4 Canadian cents to
yield 1.189 percent, while the benchmark 10-year bond
 fell 62 Canadian cents to yield 2.327 percent, its
highest yield since late in 2011.
    Canadian inflation and retail sales data is due out on
Friday.
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