TORONTO (Reuters) - The Canadian dollar hit a fresh 13-month low against its U.S. counterpart on Tuesday but regained ground to end the day only slightly lower amid fears of a Greek default and another global recession.
Global markets were volatile as investor fears about increasingly likely Greek default were offset by reassuring words from U.S. Federal Reserve Chairman Ben Bernanke that the central bank was ready to act further to support the economy.
The S&P 500 .SPX brushed up against a bear market but investors rushed in to buy technology and other beaten-down sectors and Wall Street stocks ended the day sharply higher. Canadian stocks pared most of their losses. .N.TO
Still, currency analysts said the bump in risk sentiment is likely temporary, with little certainty that European leaders will find a way to manage the growing debt crisis before it spreads into a banking disaster and world economic slump.
“Even if we get a little bit of a bounceback because risk sentiment is ending the day a bit better than it started today, I don’t think that necessarily suggests that we’ve reversed the trend over the past two days,” said David Watt, senior currency strategist at Royal Bank of Canada.
The Canadian dollar ended the North American session at C$1.0549 to the U.S. dollar, or 94.80 U.S. cents, down from Monday’s North American session close of C$1.0511 to the U.S. dollar, or 95.14 U.S. cents.
The currency had weakened as low as C$1.0658 to the U.S. dollar, or 93.83 U.S. cents, earlier in the session. That is the lowest point since August 31, 2010, when it fell as low as C$1.0674 to the U.S. dollar, or 93.69 U.S. cents.
Watt said the late-day bump was likely a short-term retracement as investors took a breath to reassess the value of commodity-linked currencies against the liquidity and safety of the U.S. dollar.
“(Then) we look at the economic and market backdrop and figure out where to go -- and from that perspective I don’t see much of an improvement in the next couple of weeks,” Watt said.
Early in the day, John Curran, senior vice president at CanadianForex, a commercial foreign exchange dealing firm, said in a research note that the Canadian dollar is testing levels not seen in more than a year.
“Several key targets are looming slightly higher at levels, which, only two weeks ago, would have been considered ludicrous. Those levels are C$1.0585, C$1.0680, C$1.0755 and C$1.0855,” Curran said.
“Canadian employment data out on Friday may temporarily stem the tide of C$ weakness with a strong print but global growth concerns and European woes still own the spotlight.”
Greece appeared more likely to default on its debt after euro zone finance ministers postponed a vital aid payment to Athens until mid-November. For details, see [nL5E7L419D].
The impact of a Greek default on the global economy, and particularly on the banking sector, worried markets after the EU ministers said they were reviewing the size of private-sector involvement in a second bailout package for Greece.
Bond prices were lower across the curve. The two-year Canadian government bond was down 12.5 Canadian cents to yield 0.900 percent, while the 10-year bond lost 40 Canadian cents to yield 2.105 percent.
Editing by Jeffrey Hodgson