February 14, 2012 / 10:09 PM / in 6 years

CANADA FX DEBT-C$ ends virtually unchanged on risk-off mood

(Updates to close)

* C$ ends lower at C$0.9995 vs US$, or $1.0005

* Bond prices track U.S. Treasuries higher

By Claire Sibonney

TORONTO, Feb 14 (Reuters) - The Canadian dollar ended little changed against the U.S. currency on Tuesday, as mixed U.S. and European economic news, along with continued uncertainty over the Greek bailout, left markets in a cautious mood.

The currency erased most of its early losses however, after a Greek government source suggested the conservative party would lend its support to the country’s tough austerity measures, easing fears of a debt default.

Earlier, broader risk appetite was hurt by data showing U.S. retail sales rose less than forecast in January as consumers cut back on car purchases and did less online shopping. ID:nCATEDE81T]

The U.S. data weighed on already fragile risk sentiment after Moody’s put the United Kingdom’s Aaa rating in jeopardy for the first time late Monday and warned it may cut France and Austria as well. Moody’s also downgraded six euro-zone nations, including Spain and Italy.

Positive market reaction from German data suggesting that Europe’s heavyweight economy is picking up pace and a successful Italian bond auction was also short-lived.

“In the short term, I think we’re just following along general risk sentiment but in a more confined range. I think over the past several months the Canadian dollar has lagged the rally in many currencies, whether it’s other commodity currencies or emerging market currencies,” said Tom Nakamura, portfolio manager at AGF Investments.

The Canadian currency ended the North American session at C$0.9995 versus the U.S. dollar, or $1.0005, off slightly from Monday’s close at C$0.9993 versus the U.S. dollar, or $1.0007.

Market participants say disappointing domestic data has also weighed on the currency recently.

Data earlier this month showed Canada’s jobs market was sluggish in January, while U.S. employment took flight from a prolonged slump.

“Our thoughts are that with the U.S. economy doing fairly well that eventually the Canadian economy will be dragged up by the U.S. economy and we will start to see the Canadian dollar play a bit of catch-up, but in the meantime it’s a bit of a laggard,” added Nakamura.

Risk from the euro zone remained in the forefront of investors’ minds as the Greek government rushed to find 325 million euros in budget cuts to satisfy European finance ministers who have still to sign off on a rescue package to save the country from a chaotic default.

Late Tuesday, a Greek government source said conservative party leader Antonis Samaras was expected to deliver a letter of commitment to the country’s international lenders on Wednesday.

“Focus is back to whether or not we get passage of the austerity in Greece and what’s going to happen with the (private sector involvement) deal,” said Matt Perrier, a director of foreign exchange sales at BMO Capital Markets.

He put near-term Canadian dollar support at Friday’s low of C$1.0040 to the U.S. dollar, followed by C$1.0075 and C$1.0155.

“The general U.S. dollar bid tone has filtered into dollar/Canada and we’ve bounced back to the upper third of our overnight range, but still well within established ranges, and waiting for a break at one way or the other really,” Perrier added.

Canadian bond prices climbed across the curve, mimicking U.S. Treasuries amid the risk-off mood. The two-year bond rose 6 Canadian cents to yield 1.065 percent. The 10-year bond jumped 41 Canadian cents to yield 2.025 percent. (Reporting by Claire Sibonney; editing by Rob Wilson)

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