Loonie down as U.S. economic concerns linger

By Frank Pingue

TORONTO (Reuters) - The Canadian dollar reversed its overnight gain and fell versus the U.S. dollar on Wednesday as the calm restored in financial markets after Tuesday's U.S. Federal Reserve rate cut was short-lived.

Domestic bond prices, with no key Canadian data to trigger a move, followed the bigger U.S. Treasury market higher across the curve as equity markets looked poised for a pullback.

At 8:40 a.m. EDT, the Canadian dollar was at US$1.0032, valuing a U.S. dollar at 99.68 Canadian cents, down from US$1.0048, valuing a U.S. dollar at 99.52 Canadian cents, at Tuesday's close.

The Canadian dollar had rallied overnight, reaching a high of US$1.0126, or 98.76 Canadian cents per U.S. dollar, as the Fed rate cut on Tuesday helped boost market sentiment.

But the domestic currency's rally during the Asian session eventually fizzled as commodity prices fell and European stocks turned lower as the relief provided by the Fed rate cut became overshadowed by nagging concerns about the U.S. economy.

"The strong finish on North American equity markets spilled over into Asian markets and investors were willing to buy riskier assets, so cyclical and commodity-based currencies like the Canadian dollar benefited from that," said Matthew Strauss, senior currency strategist at RBC Capital Markets.

"But less than 24 hours after the Fed cut, the underlying fear about the health of the financial sector is very much back in the market."

The Fed cut its federal funds rate by 75 basis points to 2.25 percent and the move helped fuel a rally in equity markets and restored some confidence in a market worried about the threat of a U.S. recession.