U.S. data cushions Canadian dollar fall as Europe's woes weigh

Thu Jan 5, 2012 4:46pm EST
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By Claire Sibonney

TORONTO (Reuters) - The Canadian dollar slipped to a one-week low against the U.S. dollar on Thursday but outperformed most major currencies as investors contrasted a positive outlook for the United States - Canada's biggest trading partner - with an escalating financial crisis in Europe.

The euro plummeted to its lowest level against the U.S. dollar since September 2010 and hit an 11-year trough versus the yen as fears about sovereign funding and concerns about the euro zone's banks made investors shun the shared currency.

Meanwhile, a report showing U.S. private employers added 325,000 jobs in December, more than double economists' expectations, added to the greenback's strength, and in turn helped Canada on the G10 crosses, with the exception of the U.S. dollar and the yen.

"I think we have two things, one is that ADP (jobs report) was a very pleasant surprise for most and has built up the whisper number for non-farm (payrolls), and the second side is that risk for euro just continues to escalate and so we have both forces really working in tandem here," said Camilla Sutton, chief currency strategist at Scotia Capital.

Elevated oil prices have also been closely correlated with Canada's resource-weighted currency recently. Oil prices settled lower on Thursday but geopolitical tensions between Iran and the West kept a floor under losses and U.S. crude still ended near $102 a barrel.

"As odd as it sounds, I think there is some recognition that oil prices remaining above $100 because of Iran is also good for Canada," added Sutton.

"Just because it also increases risk, and the downside of that could be very negative overall, but I think in the immediate term it's just seen as keeping oil prices elevated and that in turn is good for the Canadian economy."

The Canadian dollar ended the North American session at C$1.0191 against the U.S. dollar, or 98.13 U.S. cents, down from Wednesday's finish at C$1.0123 versus the U.S. dollar, or 98.78 U.S. cents.   Continued...