Loonie ends flat as euro zone rally pauses

Fri Oct 28, 2011 4:30pm EDT
 
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By Claire Sibonney

TORONTO (Reuters) - The Canadian dollar ended flat against its U.S. counterpart on Friday as the Europe-led rally lost momentum and investors took a breather from riskier assets ahead of an action-filled week.

The currency still held above parity though, following its biggest one-day gain since early August, after a long-awaited agreement to help contain the euro zone's debt crisis and strong U.S. economic data spurred a powerful surge across financial markets.

"The market has seen a good framework of a method of working toward a resolution, but the details are still really sketchy," said Michael O'Neill, vice-president of FX Trading at RJOFX Canada.

A challenging Italian bond auction highlighted investor skepticism about the euro zone deal, which included private banks and insurers accepting 50 percent losses on their Greek debt holdings; a leveraging of the euro zone bailout fund; and a recapitalization of banks.

The yield on new 10-year Italian government debt hit a euro lifetime high.

"The (euro zone) agreement didn't have a lot of details but it had everything that the market was looking for," said Mark Chandler, head of fixed income and currency strategy at RBC Capital Markets.

"There was no fresh news to keep things going and the normal sort of doubts are starting to arise today."

The latest economic data also failed to inspire much direction. Sluggish income growth led U.S. households to cut back on saving in September, though consumer sentiment perked up a bit in October.   Continued...