CANADA FX DEBT-C$ stumbles to 11-year lows as oil dives on China thrashing

August 24, 2015 Reuters

By Solarina Ho

The Canadian dollar pulled back sharply against the greenback on Monday, touching its weakest level in 11 years, as crude prices plummeted as much as 6 percent after Chinese stocks took their biggest one-day beating since the financial crisis.

A recent string of disappointing data out of China sparked expectations Beijing might take steps to sooth markets. But Chinese stocks fell nearly 9 percent after no move was made.

Worries that stalling growth in one of the world’s largest economies and commodities consumers will spur a global economic slowdown drove a dramatic meltdown in global equities and commodities, with U.S. stocks ending more than 3 percent lower.

The Canadian dollar finished at C$1.3262 to the greenback, or 75.40 U.S. cents, a sharp retreat from the Bank of Canada’s official close on Friday of C$1.3169, or 75.94 U.S. cents.

The loonie touched C$1.3290, or 75.24 U.S. cents earlier in the session, its softest level since August 2004.

The price of crude, a significant Canadian export, tumbled as low as $37.75 a barrel, before settling down 5.46 percent at $38.24. The commodity had already suffered its longest weekly losing streak since 1986 last week.

A weak greenback, which fell to its lowest level in seven months against a basket of major currencies, did little to support the Canadian dollar, which fell alongside other commodities-sensitive currencies.

“The loonie has gotten its wings clipped and the momentum against the Canadian dollar is really picking up steam … This is more of a commodities risk-off story, than it is a U.S. dollar story,” said Scott Smith, senior market analyst at Cambridge Global Payments in Calgary.

“Today’s move in equity markets and what’s happening overseas in China really puts concern in the Federal Reserve’s mind as to the international situation and whether or not a rate hike is best course of action at the September meeting.”

Canadian government bond prices were higher across the maturity curve, with the two-year price up 1.5 Canadian cents to yield 0.322 percent and the benchmark 10-year  rising 4 Canadian cents to yield 1.264 percent.

The Canada-U.S. two-year bond spread was -26.2 basis points, while the 10-year spread was -74.6 basis points.

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