March 26, 2010 / 1:00 AM / 8 years ago

Loonie eases in spite of Greece aid package

TORONTO (Reuters) - Canada’s dollar eased against the U.S. currency on Friday, unable to join in the euro’s gains after policymakers agreed on an aid package for debt-ridden Greece.

Euro zone leaders made the agreement on Thursday after weeks of wrangling to try to restore confidence in their common currency.

The Canadian dollar ended at C$1.0267 to the U.S. dollar, or 97.40 U.S. cents, down from Thursday’s finish at C$1.0248 to the U.S. dollar, or 97.58 U.S. cents.

“It really didn’t benefit from a fairly marked snapback in the euro today,” said Doug Porter, deputy chief economist at BMO Capital Markets.

One analyst said the euro’s rally may have prompted some traders to close out short positions they had on the euro against the Canadian dollar.

The euro gained broadly on the Greece accord, and got an extra lift when Bank of Greece Governor George Provopoulos told reporters the country is not likely to make use of the EU-IMF financial aid facility.

“The way I’ve been saying since the start of this year, is the Aussie and (Canadian dollar) have been the top twosome and sterling and euro have been the gruesome twosome. Now we’re getting the euro coming back a little bit so it’s not surprising to see Aussie and Cad losing a bit of the froth,” said David Watt, senior currency strategist at RBC Capital Markets.

While economic fundamentals still generally favor the Canadian dollar, it seems external forces have stalled the currency’s run earlier this month to test parity with the greenback.

“The fever seems to have broke about a week ago. The currency is clearly cooling its jets for the time being. It looks like it’s going to be a little while before it takes another run at parity,” said Porter.

Next week’s market focus will be on Canada’s GDP report for January, as well as the U.S. nonfarm payrolls report.

Bond prices were down slightly across the curve, chipping lower during the week on firming views that the Bank of Canada will raise rates later this year.

“The underlying story there is a flatter curve but a bearish flattener where we’re going to see rates grind higher across the curve,” said Porter.

The two-year government bond slipped 3 Canadian cents to C$99.63 to yield 1.699 percent, while the 10-year bond fell 16 Canadian cents to C$101.49 to yield 3.558 percent.

Canadian bonds underperformed their U.S. counterparts. The difference between 10-year yields narrowed 5.4 basis points to 28.8 basis points.

Reporting by Ka Yan Ng; Editing by Jeffrey Hodgson

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