MS: Canadian dollar lower, greenback strengthens amid rising European bond yields
TORONTO - The Canadian dollar was sharply lower Tuesday as highly indebted European countries find themselves paying higher interest rates to sell their bonds and commodity prices fell.
The loonie lost 0.7 of a cent to 97.64 cents US as traders avoided risk and bought into the safe-haven status of the U.S. dollar.
Italy was at the forefront of worry with bond markets skeptical that the country can get a grip on its huge debt.
The yield on the country’s 10-year bond was up another 0.43 percentage point Tuesday to 7.01 per cent. It was that sort of rate that eventually forced Greece, Ireland and Portugal to seek multibillion bailouts.
The problem this time is that Italy is the eurozone’s third-biggest economy and widely thought to be too big to save.
Spain’s equivalent rate is getting uncomfortably high too, rising a further 0.18 percentage point to 6.26 per cent. And France, the eurozone’s second biggest economy has seen its 10-year yield rise another 0.17 percentage point to 3.59 per cent.
"There is no 'one' catalyst we can look to as a driver of the weakness," said Mark Chandler, Head of Canada FIC Strategy at RBC Dominion Securities Inc.
"Clearly, the bond vigilantes are now turning their attention to other jurisdictions."
Also, new data measuring investor sentiment showed that German businesses remain wary as Europe’s sprawling debt crisis weighs on growth prospects. The ZEW investor sentiment index for November fell for the ninth month in a row to minus 55.2 points from minus 48.3 points in October.
The loonie was also punished by commodity prices which were pushed lower by demand concerns and the higher U.S. dollar.
A stronger greenback usually helps depress prices for oil and metals, which are denominated in dollars, as it makes commodities more expensive for holders of other currencies.
The December crude contract on the New York Mercantile Exchange was down 32 cents to US$97.82 a barrel.
The December copper contract on the Nymex fell two cents to US$3.46.
Bullion also weakened as the December contract shed 89 cents to US$1,770.40 an ounce.
