C$ hits 1-yr low, month end flows spur volatility

Thu Sep 29, 2011 4:46pm EDT
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By Andrea Hopkins

TORONTO (Reuters) - Canada's dollar dropped to a one-year low against its U.S. counterpart on Thursday, hurt by ongoing fears about Europe's debt crisis and big investors adjusting currency exposure on portfolios before month- and quarter-end.

Global markets were earlier buoyed by a vote by German lawmakers to beef up the crisis-hit euro zone's bailout package and better-than-expected data from the U.S. labor market, but the relief rally did not last.

Currency dealers said many institutional investors who suffered stock market losses in the quarter were rebalancing their foreign exchange exposure, buying the greenback against the Canadian dollar.

"Just looking at the performance of the equity market over the last month, I think most of the rebalancing flows will be buy dollar-Canada, that's probably why we've seen Canada underperform currencies like the euro," said David Bradley, director of foreign exchange trading at Scotia Capital.

The Canadian dollar ended the North American session at C$1.0366 to the U.S. dollar, or 96.47 U.S. cents, below Wednesday's North American session close of C$1.0326, or 96.84 U.S. cents.

It was a volatile session. The Canadian dollar touched C$1.0403, or 96.13 U.S. cents, late in the afternoon, its weakest point since September 2010, after having climbed as high as C$1.0256, or 97.50 U.S. cents, after the U.S. data was released.

Bradley said the Canadian dollar could weaken further on Friday, the last trading day of the month and quarter.

"We can probably test up toward C$1.0450. Really, on the brink of C$1.04 there is not much resistance until C$1.0675 which is the highs from last summer. It was really gappy when we were up here before," Bradley said.   Continued...