TORONTO (Reuters) - The Canadian dollar was little changed against its U.S. counterpart on Thursday morning as worries about a disorderly Greek default offset momentum from encouraging U.S. jobs data and positive European bond auctions.
Market sentiment dipped after Greek debt talks were reported as difficult, heightening concerns Athens would not be able to meet 14.5 billion euros ($19.1 billion) in bond redemptions due next month.
“A lot of people are concerned about the European situation and what’s going to pan out there,” said David Bradley, a director of foreign exchange trading at Scotia Capital. “People are sitting on the sidelines even though Canada looks attractive to anything in Europe.”
At 10:42 a.m. ET, the Canadian dollar stood at C$0.9983 to the U.S. currency, or US$1.0017, up slightly from Wednesday’s close at C$0.9991 to the U.S. dollar, or US$1.0009.
Bradley expects the currency to hover around parity in a tight window between C$0.9961 and C$1.0045 to the U.S. dollar.
European jitters were offset by U.S. data that showed new claims for unemployment benefits fell more than expected last week, restoring confidence in the economic recovery after recent GDP data hinted at a slowdown in the world’s top economy.
Investors were also looking ahead to U.S. Federal Reserve Chairman Ben Bernanke’s testimony on Thursday on the state of the U.S. economy for signs the central bank may be edging closer to another round of quantitative easing.
Decent demand at French and Spanish bond auctions underpinned the positive narrative, but market watchers remained concerned that Portugal could need a second bailout after yields on its government debt reached euro-era highs earlier this week.
A deteriorating European scenario was seen as the main factor knocking the Canadian dollar below parity with the greenback over the next few months, a Reuters poll of foreign exchange strategists showed.
Median forecasts in the poll showed the currency at C$1.01 to the U.S. dollar, or 99.01 U.S. cents, in one and six months from now, before drawing even with the U.S. currency by the end of the year.
“If we get a collapse in the euro it’s going to have a hard time staying below parity,” said Bradley, who predicted the Canadian dollar would rebound to end the year around C$0.980 to the U.S. dollar.
Government bond prices were mostly lower with the two-year bond down three Canadian cents to yield 0.992 percent. The 10-year bond fell 25 Canadian cents to yield 1.933 percent.
Editing by Rob Wilson