January 4, 2012 / 2:47 PM / 6 years ago

Canadian dollar dips as Europe fears return to fore

2 Min Read

TORONTO (Reuters) - The Canadian dollar softened against its U.S. counterpart on Wednesday, reversing some of its initial 2012 gains as Europe's debt crisis came back into focus.

Canada's risk-on currency tracked the euro lower after a benchmark German bond auction left markets unimpressed. Meanwhile, worries over the health of Europe's banks hit European stocks after Italian lender Unicredit was forced to price a rights issue at a huge discount.

Also, Wall Street opened slightly weaker. .N

At 9:22 a.m., the Canadian dollar stood at C$1.0141 versus the U.S. dollar, or 98.61 U.S. cents, down from Tuesday's North American session at C$1.0110 to the U.S. dollar, or 98.91 U.S. cents.

The Canadian dollar had started 2012 on a constructive note on Tuesday, climbing to its strongest level against the U.S. dollar in nearly four weeks, as rising oil prices and decent global economic data boosted investor risk appetite.

"Payback a bit for yesterday, you got a big rally pretty much around the world yesterday and now you're getting a bit sober second thought," said Benjamin Reitzes, senior economist and foreign exchange strategist at BMO Capital Markets.

"I don't think the European concerns are gone and as long as they kind of linger there, people are going to be reticent to really go all in on the market."

Reitzes said euro zone economic data on Wednesday didn't help market sentiment. The latest set of purchasing managers' indexes (PMIs) suggest the region is on course for a moderate recession, even though the composite PMI reading was slightly better than expected.

Market watchers will look to data on U.S. November factory orders due at 10 a.m. for further direction.

Canadian bond prices climbed across the curve, underperforming U.S. Treasuries at the long end in typical fashion amid the flight-to-safety bid.

The two-year bond rose 3 Canadian cents to yield 0.971 percent, while the 10-year bond gained 8 Canadian cents to yield 1.983 percent.

Reporting by Claire Sibonney

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