Canadian dollar weakens as Fed-inspired rally wanes

Mon Sep 17, 2012 4:49pm EDT
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By Claire Sibonney

TORONTO (Reuters) - The Canadian dollar dropped against its U.S. counterpart on Monday, easing further from a 13-month high hit in the previous session, as investors reassessed the impact of yet another round of U.S. monetary stimulus.

Pledges by U.S. and euro zone central banks to ease policy have helped propel the commodity-linked Canadian currency up nearly 8 percent since its lows in June.

The Fed announced last week that it plans to pump an extra $40 billion a month into the economy until jobs data improves, while the European Central Bank outlined its new bond-buying initiative earlier in the month.

But the new week started on a cautious tone, with market players asking whether this would be enough to revive global economic growth.

"There are enough question marks out there, that even the Canadian dollar will take a pause given our linkages (to the United States)," said Don Mikolich, executive director, foreign exchange sales, at CIBC World Markets.

While many had hoped for action from the Fed, last week's decision has also reminded investors just how badly the economy of the United States, Canada's biggest trading partner, is struggling.

"Obviously the thought of open-ended QE is a bit shocking and ... it shows how desperate the Fed is at the moment, so in a lot of ways it's not really a good thing," said Steve Butler, director of foreign exchange trading at Scotiabank.

The Canadian dollar finished the session at C$0.9753 versus the greenback, or $1.0253, weaker than Friday's finish at C$0.9712 versus its U.S. counterpart, or $1.0297.   Continued...

The new Canadian 20 dollar bill made of polymer is displayed at the Bank of Canada in Ottawa May 2, 2012. REUTERS/Chris Wattie