CANADA FX DEBT-C$ slides to 21-month low as US$, yields march higher

Mon Jun 24, 2013 9:54am EDT

* C$ at C$1.0535 vs US$, or 94.92 U.S. cents
    * Weakest level versus US$ since October 5, 2011
    * 10-year Canadian bond yields highest since August, 2011

    By Solarina Ho
    TORONTO, June 24 (Reuters) - The Canadian dollar hit its
weakest level against its U.S. counterpart in 21 months on
Monday, as the Federal Reserve's talk of scaling back stimulus
pushed investors away from riskier assets.
    Shares and commodities fell, while yields on 10-year
Treasury notes spiked to two-year highs.
 
    "We're driven by the U.S. dollar right now and as U.S.
yields continue to march higher you're going to see continued
U.S. dollar strength. That's probably going to be across the
board," said Benjamin Reitzes, senior economist and foreign
exchange strategist at BMO Capital Markets.
    "It's probably going to be a tough go for Canada for a while
yet. This upward cycle in yields probably, at least for the near
term, isn't done yet."
    The Canadian dollar, which was underperforming most
other major currencies, was trading at C$1.0535 versus the U.S.
dollar, or 94.92 U.S. cents, at 9:14 a.m. (1314 GMT). This was
sharply weaker than Friday's finish at C$1.0456, or 95.64 U.S.
cents.
    The currency at one point hit C$1.0554, its weakest level
since October 5, 2011.
    Canadian government debt prices mirrored the U.S., with the
two-year bond shedding 8.5 Canadian cents to yield
1.282 percent. The benchmark 10-year bond lost 86
Canadian cents to yield 2.549 percent, its highest yield since
early August, 2011.
    Reitzes said BMO was expecting the Canadian dollar to weaken
through to early next year on U.S. dollar strength and U.S.
economic outperformance.
    There is little domestic news expected to drive the currency
until Friday, when the government releases economic growth data
for the month of April. 
    "We're a tad below consensus, looking for an unchanged
number. And last week's soft CPI (consumer price index) number
(is) just another reason for nothing new to come out of Bank of
Canada and no reason for them to tighten policy, to provide any
support for the dollar," said Reitzes.
    Data on Friday showed a jump in natural gas prices raised
Canada's annual rate of inflation to 0.7 percent in May from a
3-1/2-year low of 0.4 percent, but the figure remained well
below the central bank's target, confirming there is little
pressure to raise interest rates soon.
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