CANADA FX DEBT-C$ dips vs US$, rallies to record high vs euro
(Recasts, updates with closing prices)
By Claire Sibonney
TORONTO, July 23 (Reuters) - The Canadian dollar eased to a more than one-week low against its U.S. counterpart but climbed to an all-time high versus the euro on Monday, as investors fled riskier assets on fears that Spain will not be able to avoid a costly sovereign bailout.
The latest flare-up in the European crisis overshadowed news that state-controlled CNOOC Ltd launched China's richest foreign takeover bid yet to buy Canadian oil producer Nexen Inc , a deal that would typically help boost the currency. Spanish bonds yields soared to their highest levels since the creation of the euro, hurt by fears other Spanish regions could follow Valencia in requesting help from the central government to keep it afloat. "It just highlights what's going on with markets, which is the euro is notably weak and most other currencies are reacting to that," said Camilla Sutton, chief currency strategist at Scotiabank.
The euro hit a two-year low against the U.S. dollar and a record trough versus Canada's currency at C$1.2277, or 81.45 euro cents.
"Euro/CAD still looks attractive to sell because the problems in the euro zone are much more deep-seated and structural and symptomatic about broader uncertainties within the whole ... single currency area," said Jeremy Stretch, head of currency strategy at CIBC in London.
The Canadian dollar ended the North American session at C$1.0168 to the greenback, or 98.35 U.S. cents, down from C$1.0127 against the U.S. dollar or 98.75 U.S. cents.
The Canadian dollar at one point hit C$1.0205, or 97.99 U.S. cents, its softest level since July 13, tracking a selloff in global equities and energy prices.
SPAIN'S PAIN TRUMPS NEXEN BID News of CNOOC's bid for Nexen was generally supportive of the Canadian currency, even though the deal was priced in U.S. dollars. "I think the positive for CAD comes when Canadian-based shareholders receive the U.S. dollars and transfer (them) back in," said Scotiabank's Sutton.
"The other ... positive for CAD comes on the general psychological side where the thought is that Canadian assets are attractive internationally." CIBC's Stretch pointed out the other favorable drivers for the Canadian dollar include the tightening bias of the country's central bank.
Most Canadian primary dealers expect the Bank of Canada to start raising interest rates again by mid-2013 even as its struggling peers remain in easing mode. "Also the relative fiscal position looks much more attractive than elsewhere, there isn't any real political uncertainty ... one of the problems that continues to afflict a number of jurisdictions is the inability of politicians to actually take decisions," added Stretch.
Analysts said the 50-day moving average of C$1.0222 could provide support for the Canadian dollar if it weakens further, while the 200-day moving average of C$1.0108 might prove to be a resistance level.
Looking ahead to Tuesday, markets will be watching Canadian retail sales data for May and HSBC's Chinese manufacturing figures for July, which could both influence Canada's resource-linked currency. Canadian bond prices edged higher and outperformed U.S. Treasuries across most of the curve. The two-year government bond rose 5 Canadian cents to yield 0.93 percent, while the benchmark 10-year bond gained 26 Canadian cents to yield 1.585 percent.
(With additional writing by Jeffrey Hodgson; editing by M.D. Golan)
Copyright Thomson Reuters 2012. All rights reserved.
The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.