TORONTO (Reuters) - The Canadian dollar firmed against its U.S. counterpart on Tuesday after surprisingly strong growth data from Germany, but worries about the deepening impact of the euro area crisis and fears of a Greek exit kept investors cautious.
The German economy grew 0.5 percent in the first three months of the year, well ahead of forecasts due to a big rise in exports, but weakness elsewhere in the region meant the euro zone stagnated in the first quarter.
“We’re doing better on the back of the German Q1 GDP. The fact that a myriad of other countries in the euro zone printed either negative or flat growth for Q1 and a number of consecutive quarters of negative growth or flat growth was more or less ignored,” said Jack Spitz, managing director of foreign exchange at National Bank Financial.
At 8 a.m. (1200 GMT), the Canadian dollar stood at C$1.0007 versus the U.S. dollar, or 99.93 U.S. cents, slightly stronger than Monday’s North American session finish at C$1.0029 versus the U.S. dollar, or 99.71 U.S. cents.
Spitz saw resistance for the Canadian dollar around C$0.9930-0.9940 and support around C$1.0050-1.0060.
“It’s the great sideways trade of 2012 that continues unabated,” he said.
Investors will look to Canadian inflation data for April at the end of the week for more significant direction, watching for any clues on the Bank of Canada’s next tightening move.
Analysts say a core inflation reading above 2 percent would add to expectations that the Bank of Canada could resume raising interest rates later this year. BOCWATCH
With the risk-on mood in markets on Tuesday, Canadian bond prices eased across the curve. The two-year government bond was down 5 Canadian cents to yield 1.298 percent, while Canada’s 10-year bond lost 15 Canadian cents to yield 1.951 percent.
Reporting By Claire Sibonney; Editing by Theodore d'Afflisio