May 16, 2012 / 9:03 PM / 6 years ago

Canada dollar falters on Greece worries

TORONTO (Reuters) - The Canadian dollar skidded against its U.S. counterpart on Wednesday as broader uncertainty over Greece’s future in the euro zone weighed on global equity, commodity and currency markets.

The Canadian dollar, which touched a 16-week low of C$1.0131, or 98.71 U.S. cents, against the greenback, moved in tandem with the euro on news the European Central Bank has stopped funding operations for some Greek banks.

The euro dropped to a four-month low against the U.S. dollar on Wednesday, sliding for a fourth consecutive session and likely to face more losses on fears about a Greek exit from the euro zone.

“The Canadian dollar is pretty much focused on concerns around European issues,” said Greg Moore, FX Strategist at TD Securities.

The Canadian dollar ended at C$1.0127 versus the U.S. dollar, or 98.75 U.S. cents, below Tuesday’s North American session close at $1.0068, or 99.32 U.S. cents. Canada’s currency underperformed most of its G10 currency cousins, including the Australian dollar and Japanese yen.

Earlier, the Canadian dollar had risen as high as C$1.0053 against the greenback after U.S. housing starts data, as well as a stronger-than-expected Canadian manufacturing report.

But those data points “could only support the Canadian dollar in this risk-averse environment for so long,” said Moore, who sees the currency trading in the near-term in a range of C$1.0050-60 and C$1.0150-70 against the U.S. dollar.

Markets were largely guided by worries about the euro zone. Fears that a Greek exit from the euro zone will worsen the debt crisis facing other European nations gripped financial markets on Wednesday.

A Greek departure from the euro zone would have a potentially huge knock-on effect on struggling economies such as Italy and Spain, whose bond yields climbed above the crucial 6 percent mark in the previous session.

“The problems in Europe are certainly escalating and causing a lot of stress in the markets and I think the Canadian dollar will unfortunately be sideswiped,” said Blake Jespersen, managing director of foreign exchange sales at BMO Capital markets.

Overnight, the currency slipped as far as C$1.0131, or 98.71 U.S. cents, its weakest level since January 25.

Over the next month, Jespersen said the Canadian dollar could tumble as far as C$1.03.

Concerns about Europe were also reflected in the Canadian bond market, where prices moved higher across the curve as investors fled risk and sought safety in government debt.

A “slightly more dovish tilt” to the minutes of the U.S. Federal Reserve also impacted performance in Canadian bonds, said Ian Pollick, fixed-income strategist at RBC Capital Markets.

Several Federal Reserve policymakers last month thought it may need to do more to help the recovery if it stumbles, but there was almost no support for extending the central bank’s “Operation Twist” program, due to end in June.

The two-year government bond edged up 3 Canadian cents to yield 1.275 percent, while Canada’s 10-year bond gained 10 Canadian cents to yield 1.926 percent.

Canada’s C$3.3 billion auction of 2-year bonds yielded an average 1.313 percent, the highest since July. The bid-to-cover was 2.8, the highest since at least 2010, according to Thomson Reuters data.

“I wouldn’t say it was a screamer, but I would say it was a solid auction,” said Pollick.

Additional reporting by Claire Sibonney; Editing by Dan Grebler

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