Euro letdown sinks loonie; 30-year yield at record low

Thu Dec 8, 2011 5:17pm EST
 
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By Claire Sibonney

TORONTO (Reuters) - The Canadian dollar tumbled nearly two cents against the U.S. currency on Thursday and the yield on Canada's 30-year bond sank to a record low on deflated hopes that euro zone policymakers would step up action to tackle the region's debt crisis.

Reuters reported that Germany rejected some measures in draft conclusions of EU heads on Thursday after European Central Bank President Mario Draghi played down expectations the bank would massively step up buying of government bonds after a the crucial summit on Friday.

"This market is so random and headline driven ... if you're trading this stuff, it's impossible, it's like flipping a coin," said David Bradley, director of foreign exchange trading at Scotia Capital, noting volatile market reaction to the draft headlines.

"The market is going to want to sell any rallies that we see in the euro/dollar which is going to put pressure on the Canadian dollar as well."

The Canadian dollar ended the North American session at C$1.0226 versus the U.S. dollar, or 97.79 U.S. cents, down more than 1 percent from Wednesday's North American close at C$1.0103 to the U.S. dollar, or 98.98 U.S. cents. It was the currency's biggest one-day drop in a month.

Following Draghi's comments, souring sentiment shoved the currency from a 5-week high to an intraday low of C$1.0235, or 97.70 U.S. cents, its weakest level since November 30.

Earlier in the session, the Canadian dollar had rallied to C$1.0052 against the greenback, or 99.48 U.S. cents, its highest level since November 1, after the ECB cut interest rates to a record low 1 percent and data showed U.S. jobless claims fell to a nine-month trough.

Bradley put the next resistance level for the U.S. dollar against Canada's around C$1.0290, a 50 percent retracement from the U.S. currency's highs of November, and said he wouldn't be surprised to see more greenback strength across the board heading into the year end.   Continued...