Greek deal fails to sustain Canadian dollar rally

Tue Feb 21, 2012 8:28am EST
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By Claire Sibonney

TORONTO (Reuters) - Canada's dollar was little changed against its U.S. counterpart on Tuesday as enthusiasm over a long-awaited deal on a second bailout for Greece was tempered by concern over its implementation of painful austerity measures.

The Canadian dollar stood at C$0.9960 to the U.S. dollar, or $1.0040, off slightly from Friday's North American finish at C$0.9957 versus the U.S. dollar, or $1.0043. Most Canadian markets were closed on Monday for a holiday, as was Wall Street.

After 13 hours of talks, euro zone ministers finalized a 130 billion euro ($172 billion) agreement after forcing Athens to commit to unpopular budget cutbacks and private bondholders to accept deeper losses, ensuring the government can meet a debt repayment due next month.

The deal was offset by worries the austerity plan will severely weaken Greece's already shrinking economy and make it harder to repay its debts. The sharp cuts in the value of bonds held by private creditors also mean it will be hard for the country to borrow from capital markets again.

"There seem to be some reservations really about possibly the implementation near term ... and the parameters that we saw in the package overall are not that far from what the market really expected," said Adam Cole, global head of currency strategy at RBC Capital Markets in London.

"There are still some hurdles to get over in terms of the degree of private sector participation and whether or not that means that the Greek government has to use the collection action clauses that it's setting up in the next few days. And that uncertainty will overhang the markets for a couple of weeks," he added. He noted that waiting for ratification by some individual parliaments will also weigh.

Domestic retail sales and wholesale trade data for December were expected to set further direction. The Federal Reserve Bank of Chicago will release its Chicago Fed National Activity Index for January.

Cole pointed to Canadian dollar resistance around Monday's high of C$0.9907 and support around the psychological barrier of parity.   Continued...

A Canadian Loonie, otherwise known as a one dollar coin, is displayed on top of an American one dollar bill in this posed photograph in Toronto, October 10, 2008.    REUTERS/Mark Blinch