C$ hit with commodity cousins on China news

TORONTO: Canada's dollar retreated against the US dollar on Monday as commodity-linked currencies weakened after China announced its lowest annual growth target in eight years, sparking concern about demand for resources such as oil and base metals.

Oil prices were tugged in both directions, initially falling on the Chinese data, but later bouncing back on supply risks and tensions over Iran's nuclear program.

Copper lost more than 1 percent of its value on the downbeat news from the world's largest buyer of industrial metals.

"It's a classic flow into US dollars and Japanese yen, largely triggered by the news overnight that China was downgrading their growth target for the year," said David Tulk, chief Canada macro strategist at TD Securities.

"But as the day wore on, it seemed to be more just a flight out of commodity currencies ... those that have continued to lag are the New Zealand, Australian, Canadian dollars as well as the Norwegian krone. So it's more of that kind of day where the idea that maybe China grows at a slower rate hurts commodity demand and by association, commodity currencies."

The Canadian dollar ended the North American session at C$0.9942 versus the US dollar, or $1.0058, down from Friday's close at C$0.9886 versus the US dollar, or $1.0115.

Tulk said near-term support for Canada's currency was still around parity with the greenback, and resistance was eyed around C$0.9845.

A downward revision to euro zone surveys of purchasing managers' assessments for February also weighed on broader market sentiment, wiping out much of the positive effects of last week's European Central Bank injection of three-year funding to banks.

As well, nervousness over whether Greece will complete a bond exchange with private creditors by Thursday, to secure a 130 billion euro ($172 billion) bailout deal and avoid a messy debt default, undermined demand for riskier assets.

The Greek bond offering will be held the same day Bank of Canada Governor Mark Carney makes his next interest rate announcement.

"Having those two big events on Thursday will create a bit of caution in the markets and you may not see much of a range for the Canadian dollar over the next three days," said Blake Jespersen, managing director of foreign exchange sales at BMO Capital Markets.

Sluggish domestic growth and uncertainty about the global economy will likely keep the Bank of Canada from raising rates until the second quarter of 2013, according to a Reuters survey.

Canadian bond prices tracked US Treasuries lower on US services sector data suggesting the US economy was picking up steam.

Canada's two-year bond was down 3 Canadian cents to yield 1.118 percent. The 10-year bond fell 20 Canadian cents to yield 1.982 percent.

Copyright Reuters, 2012