Canadian dollar pulls back from near parity with US$ after ECB

Thu Aug 2, 2012 2:10pm EDT
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By Jennifer Kwan

TORONTO (Reuters) - The Canadian dollar sank after soaring to near parity with the U.S. dollar on Thursday after European Central Bank President Mario Draghi disappointed the market by not unveiling immediate measures to combat the euro zone debt crisis.

Draghi heightened speculation of further bank purchases of Italian and Spanish bonds when he said last week that he would do "whatever it takes to preserve the euro."

However, Draghi stopped short of providing quick action. Instead, he said the ECB will draw up a mechanism in the coming weeks to make outright purchases to stabilize stressed euro zone borrowing costs.

"Expectations got a little inflated. Draghi deflated those expectations," said John Clinkard, chief economist at Deutsche Bank Canada.

Global stock markets and the euro tumbled and the Canadian dollar touched C$1.0080 versus the greenback, or 99.21 U.S. cents, its weakest in nearly a week.

"It seems the ECB was caught off guard by the aggressive rhetoric from Draghi last week," said Dean Popplewell, chief currency strategist at OANDA.

"Draghi came out of the gate swinging. Once the market realized there was no firm action and that this is still a work in progress ... risk-off was again applied rather quickly."

At 1:40 p.m. EDT (1740 GMT), the Canadian dollar was at C$1.0074, or 99.27 U.S. cents, pulling back from a session high C$1.0002, or 99.98 U.S. cents as Draghi began a press conference.   Continued...