Canada dollar weakens to three-week low on Greek crisis

Tue May 8, 2012 7:44pm EDT
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By Jennifer Kwan

TORONTO (Reuters) - Canada's dollar dropped to a three-week low against its U.S. counterpart on Tuesday as Greece's struggle to form a new government fueled investor worries about Europe's ability to fend off a deeper crisis in the region.

Global equity, currency and commodity markets were rattled as Greece's political crisis intensified after a candidate for prime minister renounced the terms of a bailout that is keeping the country's finances afloat.

"It's a risk aversion move. We have a U.S. dollar that is strong right across the board," said Camilla Sutton, chief currency strategist at Scotiabank.

Canada's dollar had risen sharply following a more hawkish stance by the Bank of Canada last month. But traders have been paring back their expectations of a Canadian rate hike in recent sessions, reducing the appeal of the currency.

"European conditions are continuing to unfold on the sour side. People are coming to the realization that maybe we got ahead of ourselves," said Ian Pollick, fixed income strategist at RBC Capital Markets.

The Bank of Canada has frozen rates at 1 percent since September 2010 after it became the first in the G7 to raise borrowing costs from lows hit during the financial crisis.

The European news pushed the Canadian dollar to a low of C$1.0023 against the greenback, or 99.77 U.S. cents, its weakest since April 16.

It ended the session at C$0.9983 versus the U.S. dollar, or $1.0017, down from Monday's finish at C$0.9930 versus the U.S. dollar, or $1.0070.   Continued...