C$ loses more ground on investor caution

Tue Jan 26, 2010 4:26pm EST
 
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By Jennifer Kwan

TORONTO (Reuters) - The Canadian dollar stumbled versus the U.S. currency on Tuesday as investors shunned risky assets, sparked by China's clampdown on lending and as Japan's credit rating was put in the spotlight.

China's central bank ordered banks that need to raise their reserve ratios to implement the change on Tuesday, banking sources said In recent weeks, China has moved to cool bank lending to curb inflation and forestall asset bubbles.

"The risk-aversion trade seems to be back in vogue. Markets are focusing on things that have arisen over the past couple of weeks, which include China continuing to cool down their skyrocketing economy," said John Curran, senior vice-president at CanadianForex.

"People are looking to them to lead the recovery. If they start to cut back, everyone else is going to have to cut back. If we cut back while we're just starting to get out it's going to dampen hopes and dampen the recovery."

Standard & Poor's added to the sour mood by warning it would cut Japan's credit rating unless it produced a credible plan to rein in its soaring debt.

"Put together, they can have a destabilizing impact on risk assets," said Millan Mulraine, economics strategist at TD Securities.

The Canadian dollar hugged a low of C$1.0692 to the U.S. dollar, or 93.53 U.S. cents, its weakest level since December 21. But it fought back to finish at C$1.0625 to the U.S. dollar, or 94.12 U.S. cents, down from Monday's close at C$1.0581 to the U.S. dollar, or 94.51 U.S. cents.

Aiding its move higher from its lowest level of the session were steady U.S. stocks -- typically a yardstick of risk appetite -- which were supported by data that showed U.S. consumer confidence rose for a third straight month.   Continued...