Canadian dollar strengthens on Fed, but Europe weighs

Thu Jan 26, 2012 5:18pm EST
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By Jon Cook

TORONTO (Reuters) - Canada's dollar hovered close to parity with its U.S. counterpart on Thursday after the U.S. Federal Reserve's plans to keep rates low until 2014 drove down the U.S. dollar, but gains were pared by a slide in the euro as Greek debt talks produced few results.

The Canadian currency reached its highest point in nearly three months during the day after the U.S. central bank said on Wednesday it would likely keep interest rates near zero until late 2014 and Fed Chairman Ben Bernanke opened the door to further stimulus measures.

U.S. jobless data on Thursday added to expectations the U.S. Federal Reserve will keep policy easy for a long time, as weekly claims rose to 377,000, above a consensus forecast for 370,000. Sentiment also sagged after U.S. home sales fell 2.2 percent in December.

But the rally ebbed as investors fully digested the Fed statement and a more cautious tone returned.

"The wind has come out of the sails a bit," said Rahim Madhavji, president of Knightsbridge Foreign Exchange. "For the most part, people have priced in this new move on interest rates and it will be back to seesawing between U.S. economic growth on one end and the issues in Europe on the other hand."

The Canadian dollar finished at C$1.0017, or 99.83 U.S. cents, after breaching parity with the greenback for the first time since November 1 early Thursday and rising as high as C$0.9981. On Wednesday, the currency finished at C$1.0035 to the U.S. dollar, or 99.65 U.S. cents.

The currency's rally spurred the Canadian corporate sector to buy the greenback and sell Canadian dollars, said C.J. Gavsie, managing director of foreign exchange sales at BMO Capital Markets.

A strong Canadian dollar generally makes Canadian exports less competitive.   Continued...