April 9, 2014 / 1:52 PM / 3 years ago

C$ pulls back from near two-month high

3 Min Read

TORONTO (Reuters) - The Canadian dollar weakened against the greenback on Wednesday, pulling back from a near two-month high overnight as investors consolidated recent gains.

Still, the decline was modest as risk appetite continued to sharpen, helped by Greece's announcement that it would return to debt markets. The benchmark five-year bond will be the first long-term debt sale for Greece since its international bailout started four years ago. The country has been bailed out twice by the European Union and the International Monetary Fund.

Since hitting a 4-1/2 year low in late March, the Canadian dollar has rebounded by about 3 percent. Stronger-than-expected economic data recently has helped improve sentiment for the loonie.

"Obviously the currency had weakened quite dramatically through the end of last year and into early 2014, so some of the positioning I think was perhaps just a little bit stretched," said David Tulk, chief Canada macro strategist at TD Securities in Toronto.

With a light economic calendar in the coming days, attention was turning to the Bank of Canada's upcoming policy announcement next Wednesday. The central bank's more dovish stance has been a major driver of the currency in recent months and investors will be watching to see if the bank alters its tone.

While strength in Canadian data has given the loonie a bit of a lift recently, the next major move in the U.S. dollar-Canadian dollar pairing will come down to how the U.S. dollar performs, Tulk said.

"When it comes down to it, I think we'll have to wait for the stronger U.S. dollar story to reassert itself once the data in the U.S. begins to improve over the next couple months. That will get us back to the story of weakness in the Canadian dollar, which is core to our own view."

The Canadian dollar was at C$1.0937 to the greenback, or 91.43 U.S. cents, weaker than Tuesday's close of C$1.0922, or 91.56 U.S. cents.

The currency rose as high as C$1.0912 overnight, matching the previous day's peak, which is the highest level since mid-February.

There is no domestic economic data on the docket on Wednesday but investors will get the minutes from the U.S. Federal Reserve's last policy meeting later in the day.

Canadian government bond prices were lower across the maturity curve, with the two-year off 1.8 Canadian cents to yield 1.092 percent and the benchmark 10-year down 19 Canadian cents to yield 2.483 percent.

Editing by Peter Galloway

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