CANADA FX DEBT-C$ weaker on Greece worries, weaker oil

June 29, 2015 Reuters

by Alastair Sharp and Leah Schnurr

TORONTO/OTTAWA, June 29 The Canadian dollar weakened against the greenback on Monday as global uncertainty mounted over whether Greece was headed for a default following a breakdown in talks with international lenders.

The risk aversion weighed on oil prices, which in turn hurt the commodity-sensitive loonie. U.S. crude futures settled $1.30 lower at $58.33 a barrel.

Greece’s bailout expires Tuesday and the country faces an IMF payment the same day, which a Greek official confirmed would not be made. The potential for a default could take the country closer to exiting the euro zone.

Trading will likely stay choppy as the Greek developments unfold, exacerbated by market holidays in Canada and the United States later this week, said Scott Smith, senior market analyst at Cambridge Global Payments in Calgary.

“Volatility is going to be pretty high as liquidity is going to be stretched as we head into the end of the week,” said Smith.

The Canadian dollar ended the North American session at C$1.2392 to the greenback, or 80.70 U.S. cents, weaker compared with the Bank of Canada’s official close on Friday of C$1.2315, or 81.20 U.S. cents.

Nonetheless, the loonie fared relatively well compared to the selloff in equities. Toronto stocks shed more than 2 percent, wiping out the gains made so far in 2015.

“If this had been two or three years ago it would have been very negative for the Canadian dollar through the risk-off channel,” but correlation between foreign exchange and equities has diminished to pre-crisis levels, said Elsa Lignos, a currency strategist at RBC Capital Markets.

Tuesday will bring the week’s most notable domestic data, with economic growth forecast to have picked up by 0.1 percent in April after a weak first quarter.

While traders will be looking to see if the economy was able to regain momentum, the data may not prove to be a market mover, with the spotlight on Greece and U.S. jobs data due on Thursday, said Cambridge Global’s Smith.

Canadian government bond prices were higher across the maturity curve, with the two-year bond up 15 Canadian cents to yield 0.563 percent and the benchmark 10-year bond  rising by C$1.23 to yield 1.742 percent.

The Canada-U.S. two-year bond spread was -7.4 basis points, while the 10-year spread was -58.1 basis points.

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