July 25, 2012 / 12:15 PM / 5 years ago

Canada dollar rebounds from two-week low on ECB comments

Images of the front and the back of the new Canadian 50 dollar bill, made of polymer, are seen on display before a news conference in Quebec City, March 26, 2012.Mathieu Belanger

TORONTO (Reuters) - The Canadian dollar recovered from a near two-week low on Wednesday, tracking the euro and global shares higher after a European Central Bank policymaker said there were reasons to boost the firepower of the euro zone's new bailout fund.

Governing Council member Ewald Nowotny said there were arguments for giving Europe's permanent rescue fund a banking license which would allow it to borrow unlimited ECB money, an idea that the central bank has rejected so far.

"That gave markets a bit of a boost pretty much across the board and that enabled them to overlook the ... poor data overnight," said Benjamin Reitzes, senior economist and foreign exchange strategist at BMO Capital Markets.

Investors have become increasingly worried that the force of the new fund would be hugely diminished if, as widely expected, Spain needs a full scale sovereign bailout on top of the rescue deal for its banks.

Weighing on global sentiment earlier, data showed Britain's economy shrank deeper into recession than expected in the second quarter of 2012, battered by everything from an extra day's holiday to budget austerity and the neighboring euro zone crisis.

German business sentiment also dropped in July to its lowest level in more than two years, adding to signs that Europe's largest economy is losing momentum along with its immunity to fallout from the region's deepening problems.

At 8 a.m. EDT (1200 GMT), the Canadian dollar stood at C$1.0185 versus the greenback, or 98.18 U.S. cents, up from Tuesday's North American session close at C$1.0204 versus its U.S. counterpart, or 98.00 U.S. cents. Overnight, it hit C$1.0232, or 97.73 U.S. cents, its weakest level since July 12.

In the absence of any major North American data, TD Securities noted that the low C$1.02 area remains supportive for the Canadian dollar, near the 40-day moving average at C$1.0224. Resistance for Canada's currency was seen around C$1.0130-60.

Canadian bond prices slid across the curve with the two-year bond off 4 Canadian cents to yield 0.950 and the benchmark 10-year bond down 25 Canadian cents to yield 1.603 percent.

Reporting by Claire Sibonney; Editing by Theodore d'Afflisio

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