MS: Canadian dollar lower amid Moody's decision, growing worries about Spain
TORONTO - The Canadian dollar was lower Tuesday as traders continued to avoid riskier assets such as resource-based currencies like the loonie on growing worries about Spain and a warning from Moody's Investor Services.
The currency was down 0.1 of a cent to 98.25 cents US.
Moody's Investor Services moved late Monday to lower the outlook on Germany's AAA rating to negative from stable due to mounting uncertainties from the euro-zone debt crisis.
Moody's also downgraded the outlooks on the Netherlands and Luxembourg and affirmed Finland's AAA rating.
The agency noted that the cost of supporting Italy and Spain in the eurozone would fall most heavily on better rated members "if the euro area is to be preserved in its current form."
Worries that Spain may need a full-blown sovereign bailout weighed on markets. The country has been mired in recession and its banks are saddled with billions of euros in toxic loans arising from a collapsed real estate market.
Confidence about Spain's ability to deal with its finances has taken a beating, with the country forced to pay ever higher yields in order to finance its debt. The yield on its benchmark 10-year bond surged well past the seven per cent mark Monday, a level considered unsustainable.
The yield on the country’s 10-year bonds was up another 0.11 percentage points Tuesday at 7.54 per cent. On Monday the yield rose to an intraday high of 7.56 per cent.
Spain also paid more to finance its short-term debt.
On Tuesday, Spain's Treasury sold €1.63 billion in three-month bills at an average interest rate of 2.43 per cent compared to 2.36 per cent in the last such auction June 26.
Meanwhile, Statistics Canada reported that retail sales rose 0.3 per cent in May to $38.9 billion.
That was lower than the 0.5 per cent rise that economists expected.
The commodity-sensitive loonie was also pressured by falling prices for oil and metals.
The September crude contract on the New York Mercantile Exchange declined 14 cents to US$88 after plunging almost $4.
Copper lost one cent to US$3.37 a pound on top of Monday's seven-cent drop while August bullion lost $3 to US$1,574.40 an ounce.
Commodities fell despite some positive news about the Chinese economy.
Preliminary results of HSBC’s monthly survey of Chinese manufacturers showed the contraction in manufacturing eased in July. The bank’s Purchasing Managers' Index which combines various measures of manufacturing activity rose to 49.5 from 48.2.
