Loonie dips as euro zone euphoria fades

Fri Oct 28, 2011 9:38am EDT
 
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By Claire Sibonney

TORONTO (Reuters) - The Canadian dollar drifted lower against its U.S. counterpart on Friday morning as the Europe-led euphoria faded after a weak Italian bond auction and disappointing U.S. economic data.

The currency still held above parity however, a day after posting its biggest one-day gain since early August, after a long-awaited agreement to help contain the euro zone's two-year debt crisis that caused financial markets to soar.

Commodity prices were also weaker, adding pressure to Canada's resource-driven currency. .N <O/R> <MET/L>

"It seems to be a broad move across most asset classes where we're giving back some of the gains that we saw from yesterday," said Mark Chandler, head of fixed income and currency strategy at RBC Capital Markets.

"If you look at the flow of headlines there are bits and pieces that have people worried about the progress in Europe. I don't think it's unexpected or that meaningful but that's helping to erode some of the risk-on move that we've seen."

Yields at the sale of 10-year Italian bonds hit a euro-era high above 6 percent, showing investors have yet to be convinced the region's problems are on the way to being solved.

The auction highlighted investor skepticism about the euro zone deal that included an agreement that private banks and insurers accept 50 percent losses on their Greek debt holdings; a leveraging of the euro zone bailout fund; and a recapitalization of banks.

On the data front, sluggish growth in U.S. consumer income in September led households to cut back on saving to increase their spending, casting doubts over the durability of the economy's third-quarter growth spurt.   Continued...