May 14, 2012 / 12:32 PM / 6 years ago

Canada dollar weakens on fears of Greek euro exit

TORONTO (Reuters) - Canada’s dollar fell against its U.S. counterpart on Monday as investors eschewed riskier assets due to mounting political uncertainty in Greece and worries about slowing Chinese growth.

Global stocks slid to their lowest point in months on concern Greece could leave the euro zone, while oil prices fell after a move by economic powerhouse China to prop up lending sparked fears its economy was weaker than has been thought.

Investors took refuge in government debt and the safe-haven U.S. dollar. The euro hit a near four-month low against the dollar. <FRX/>

While the Canadian dollar slid further below parity with its U.S. counterpart, it gained against many other major currencies, buoyed by memories of Friday’s strong Canadian employment report and the prospect of eventual rate hikes.

“You look at how the currency has performed relative to most of the crosses, and it is actually not bad,” said David Tulk, chief Canada macro strategist at TD Securities.

“It’s still a risk-off day and that lifts the U.S. dollar, so it is not too surprising to see the Canadian dollar generally weaker. But Canada relative to the Australia dollar, or relative to the euro, is outperforming. We’re doing better than most others against the U.S.,” Tulk noted.

The Canadian dollar ended the North American session at C$1.0029 versus the U.S. dollar, or 99.71 U.S. cents, down slightly from Friday’s close at C$1.0009 versus the U.S. dollar, or 99.91 U.S. cents.

But it hit its strongest level against the Australian dollar since October and was at its firmest against the euro since January of 2011.

The Canadian dollar was also holding in relatively well compared to global stock markets, noted Carlos Leitao, chief economist at Laurentian Bank Securities.

“The loonie hasn’t lost as much as the equity markets would have suggested. There is some underlying strength to the Canadian dollar despite this large-scale aversion to risk,” Leitao said.

The currency was supported by data on Friday that showed Canada added 58,200 jobs in April, mostly full-time, after a whopping gain of 82,300 new positions in March, increasing bets that the Bank of Canada might start to tighten policy sooner than previously thought.

Higher interest rates tend to support currencies by attracting global capital flows.

With stock markets tumbling on Monday, Canadian bond prices climbed across the curve. The two-year government bond rose 3.5 Canadian cents to yield 1.284 percent, while Canada’s 10-year bond jumped 21 Canadian cents to yield 1.948 percent.

With additional reporting by Jon Cook; Editing by Jeffrey Hodgson

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