(Updates to close)
By Ka Yan Ng
OTTAWA (Reuters) - The Canadian dollar slid to its
lowest level in nearly three weeks on Wednesday, while bonds
surged, as a spate of disappointing indicators, including
widening North American trade deficits, left investors worried
about the global economic recovery.
Canada posted a June trade deficit of C$1.13 billion nearly
four times expectations, while the U.S. monthly trade gap
widened by 19 percent to $49.9 billion, the biggest shortfall
since October 2008.
"It was a double whammy of bad news for the currency," said
Sal Guatieri, senior economist at BMO Capital Markets.
"Canada's trade report showed a considerable widening in our
trade deficit, partly because of a drop in exports, and the
weak U.S. trade report will fan fears of a faltering U.S.
economic recovery, which will raise concerns about further
weakness in Canadian exports."
As a result, the Canadian currency, already under pressure
from pessimistic outlooks from the U.S. Federal Reserve and
Bank of England, as well as weak Chinese economic data, fell
more than a penny after breaking a key technical level of
C$1.04 early in the session, and stayed well below it.
The currency finished at C$1.0453 to the U.S.
dollar, or 95.67 U.S. cents, recovering from its session low of
C$1.0475 to the U.S. dollar, or 95.47 U.S. cents, its weakest
level since July 22.
It was off more than a penny from Tuesday's finish at
C$1.0323 to the U.S. dollar, or 96.87 U.S. cents.
David Bradley, director of foreign exchange trading at
Scotia Capital, said the Canadian dollar may be "particularly
vulnerable" to a slower global economy since it is sensitive to
factors such as commodity prices and may also track equity
markets, which could extend declines.
He said a close beyond C$1.0410 to the U.S. dollar could
set up a test of C$1.0725 to C$1.0750. These levels have not
been seen since late May and would be a reversal from late last
week when the currency looked set to approach parity with the
greenback, a level it has not seen since April.
A climb towards parity is probably on hold for now, as
analysts said it was more likely that Canada's dollar could
stumble further in the near term as worrying global economic
data dims investor appetite for so-called growth currencies.
BONDS PRICES TAKE FLIGHT
Canadian bond prices extended their gains, particularly
rate-sensitive short-dated issues, which shot higher as market
players recalibrated their views on the global economy and
shifted to the security of government debt issues.
Risky assets fell out of favor, with North American stock
indexes losing between 2 and 3 percent.
"We're seeing a flight to quality today because of the
rotation out of risky assets and a reappraisal of the Bank of
Canada's tightening trajectory," said Fergal Smith, managing
market strategist at Action Economics.
Market pricing, measured by yields on overnight index
swaps, fell to around a 50 percent chance of quarter-point rate
hike in September from around 58 percent before the day's data.
The two-year bond jumped 18 Canadian cents to
yield 1.352 percent, while the 10-year bond added
52 Canadian cents to yield 2.972 percent.
An auction of two-year government of Canada bonds attracted
decent demand, producing a bid-to-cover ratio of 2.523 that was
close to the recent average.
In new issues, Rogers Communications sold C$800
million in 30-year debt at nearly 251 basis points over the
comparably benchmark government bond.
(Additional reporting by Claire Sibonney; editing by Rob