Loonie hits one-week low, hurt by greenback rally

Wed Dec 30, 2009 5:09pm EST
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By Ka Yan Ng

TORONTO (Reuters) - The Canadian dollar fell more than one U.S. cent on Wednesday, hit by a broad-based U.S. dollar rally in a session which also saw thin trading and the surprise suspension of the country's Parliament.

The unit moved from a 2-1/2 month high hit on Tuesday to a one-week low early in the session, with many traders taking advantage of the shortened week to go on holiday.

The currency held lower after news that Canadian Prime Minister Stephen Harper is planning to have Parliament suspended until early March, giving the minority Conservative party political advantages but bringing an angry backlash from a sidelined opposition.

Political uncertainty tends to be negative for a country's currency. The Conservatives need support from at least one other party to stay in power, but no election is expected in the near future.

"The Canadian dollar was already weakening ahead of that. I would say it has been a bit of a short-term negative and of course it's been exacerbated by the fact that there's not much liquidity," said George Davis, chief technical analyst at RBC Capital Markets.

The Canadian dollar ended at C$1.0553 to the U.S. dollar, or 94.76 U.S. cents, down from C$1.0438 to the U.S. dollar, or 95.80 U.S. cents, at Tuesday's close.

The greenback gained across the board on Wednesday, hitting its highest since late September against the Japanese yen as it benefited from year-end flows in thin trade and from the view the U.S. economy is on the road to recovery.

After a technical point was triggered on Tuesday, market players took the Canadian currency to a high not seen since October 20 at 96.47 U.S. cents, but the move was short-lived.   Continued...