C$ slips on political uncertainty in Europe

Tue May 8, 2012 8:12am EDT
 
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By Claire Sibonney

TORONTO (Reuters) - The Canadian dollar eased against its U.S. counterpart on Tuesday as Greece struggled to form a new government, worrying investors about austerity plans at the heart of efforts to tackle Europe's debt crisis.

Greece's mainstream conservatives failed to reach a coalition deal following Sunday's election. That gives the Left Coalition party, which opposes the country's EU/IMF bailout, a chance to form a government, with the prospect of fresh elections if it cannot do so.

"The Canadian dollar is lower because of increased risk aversion and that entirely relates to European political developments as the Greek election result continues to filter through the market," said Fergal Smith, managing market strategist at Action Economics.

"The idea that ... the anti-bailout party is going to try to form a government, the possibility that they'll default on bond payments and ultimately the risk that they'll be forced to exit the (European Monetary Union)."

Meanwhile, Socialist French president-elect Francois Hollande has advocated an approach to tackling the debt crisis centered more on growth, which may create tensions with Germany's insistence on fiscal austerity.

At 8 a.m. (1200 GMT), the Canadian dollar stood at C$0.9960 versus the U.S. dollar, or $1.0040, down from Monday's finish at C$0.9930 versus the U.S. dollar, or $1.0070.

Smith noted resistance for the U.S. dollar against Canada's was still in place around parity to C$1.0050.

Canadian bond prices edged up across the curve, with Canada's 2-year bond up half a Canadian cent to yield 1.269 percent, while the benchmark 10-year bond gained 11 Canadian cents to yield 2.008 percent.

(Reporting By Claire Sibonney; Editing by Chizu Nomiyama)