CANADA FX DEBT-C$ sags on renewed Europe debt fears

Published 12/06/2010, 04:47 PM
Updated 12/06/2010, 04:48 PM

* C$ closes lower at 99.47 U.S. cents

* Bond prices track U.S. Treasuries higher (Updates to close; adds details, commentary)

By Claire Sibonney

TORONTO, Dec 6 (Reuters) - The Canadian dollar slipped lower against its U.S. counterpart on Monday, as riskier currencies were sold on growing doubts that European officials would find a common approach to ease the region's debt crisis.

Euro zone finance ministers met on Monday amid pressure to increase the size of a 750-billion-euro ($1 trillion) safety net for debt-stricken members in hopes of halting potential contagion to other countries. [ID:nLDE6B40EJ]

However, the Canadian dollar still held its own against other major currencies as the second best performer behind the greenback, thanks to strength in commodity markets.

"As the week starts, the market has refocused on European concerns," said Matthew Strauss, senior currency strategist at RBC Capital Markets.

"But ultimately, as the market moves into safe-haven U.S., it seems that the Canadian dollar benefited through proximity."

Prices for key Canadian exports such as oil and metals were boosted by comments from U.S. Federal Reserve Chairman Ben Bernanke that raised the possibility of more quantitative easing, spurring optimism for the demand outlook.

Bernanke, appearing on the U.S. TV news program "60 Minutes" on Sunday, said the Fed could end up buying more than the $600 billion in U.S. government bonds it has committed to purchase, if the economy failed to respond. [ID:nN05271909]

The Canadian dollar closed the North American session at C$1.0053 to the U.S. dollar, or 99.47 U.S. cents, down from Friday's finish at C$1.0033, or 99.67 U.S. cents.

Strauss said the area just above parity continues to provide near term support for the U.S. dollar, followed by C$0.9977 -- a bottom that has been unsuccessfully tested a number of times during the last few months.

The focus on Tuesday will be on the Bank of Canada's interest rate announcement. While markets are pricing in next to no chance of a move, investors will be eyeing the accompanying statement closely.

Strauss noted that meaningful changes to the outlook seem unlikely in the absence of a quarterly monetary policy report, last released in October, with the statement seen retaining its cautious tone.

Also on Tuesday, ministers from the 27-nation European Union are expected to formally approve an 85 billion euro aid package for Ireland and discuss the reform of EU budget rules, which could set further direction for the week.

Canadian bond prices were firmer across the curve, tracking U.S. Treasuries, where debt prices rallied on Bernanke's comments and as euro zone jitters sparked a safe-haven bid. [US/]

The two-year Canada bond was up 14 Canadian cents at to yield 1.562 percent, while the 10-year bond gained 50 Canadian cents to yield 3.129 percent. (Reporting by Claire Sibonney; editing by Rob Wilson)

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