December 12, 2011 / 2:37 PM / 6 years ago

Loonie slips as EU pact euphoria fades

3 Min Read

TORONTO (Reuters) - The Canadian dollar retreated against its U.S. counterpart on Monday as investors doubted a pact last week by the European Union to enforce stricter budget discipline among member nations would address the region's longer-term debt problems.

Global stocks, oil prices and other riskier assets dropped on that uncertainty.

"The euphoria of Friday's trading has worn off," said Camilla Sutton, chief currency strategist. "All in all, we're seeing risk aversion is once again the theme for today. Most of the currencies are very weak and the U.S. dollar is strong so Canada is also weakening."

At 8:50 (1350 GMT), the Canadian dollar stood at C$1.0268 to the U.S. dollar, or 97.39 U.S. cents, down from Friday's close at C$1.0184 to the U.S. dollar, or 98.19 U.S. cents.

Sutton said she expects the currency to trade in a range of C$1.0210-C$1.0310 against the U.S. dollar in the near term.

With the exception of Britain, EU states decided on Friday to set stricter budget rules for the single currency area and to provide up to 200 billion euros in bilateral loans to the International Monetary Fund in response to the turmoil.

"The pact was disappointing on all fronts, and I think that the market is taking it as such. There's no quick and easy fix for Europe, and focusing just on the fiscal side does threaten that the S&P will downgrade a host of countries," Sutton said.

Investor optimism about a report that China planned a new $300 billion vehicle to invest in Europe and the United States also faded.

Markets would next look to Bank of Canada Governor Mark Carney for direction later on Monday. He is expected to deliver a speech on "Global Deleveraging And The Implications For Canada."

Canadian government bond prices edged higher across the curve, following U.S. Treasuries that rose as the outcome of the EU summit failed to reassure financial markets looking for a longer-term solution to the debt crisis.

The two-year bond climbed 4 Canadian cents to yield 0.889 percent, while the 10-year bond edged 18 Canadian cents higher to yield 2.045 percent.

Reporting By Jennifer Kwan; Editing by Jan Paschal

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