June 11, 2013 / 2:14 PM / in 4 years

Canada dollar softens in flight from risk assets

TORONTO (Reuters) - The Canadian dollar weakened on Tuesday against the U.S. dollar, as investors retreated into less risky assets following signs that major central banks are easing off on their aggressive economic stimulus policies.

The new Canadian five and 10 dollar bills, made of polymer, are displayed with the previously released 20, 50 and 100 dollar notes following an unveiling ceremony at the Bank of Canada in Ottawa April 30, 2013. REUTERS/Chris Wattie

Overnight, the Bank of Japan held back from taking additional measures to tackle rising government bond yields, causing a sellout in global equity markets.

This follows recent speculation on when the U.S. Federal Reserve would begin scaling back its quantitative easing. More aggressive stimulus action helps boost risk sentiment because it provides more support and growth for the economy.

“Given that it was a fairly staid affair for this central bank, that has weighed on sentiment overnight on markets, in this case, the Canadian dollar, has weakened a little bit,” said Mazen Issa, macro strategist at TD Securities. “It’s filtered in across some of the currency markets.”

The Canadian dollar was trading at C$1.0226 versus the U.S. dollar, or 97.77 U.S. cents at 9:25 a.m. (1325 GMT), weaker than Monday’s North American session close at C$1.0190, or 98.14 U.S. cents.

The loonie, as the Canadian dollar is also known, was mixed against a broad range of key currencies. It was outperforming other commodity currencies - touching a 2-1/2 year high against the Australian dollar and gained against the New Zealand dollar.

Prices for Canadian government debt were lower across the maturity curve, with the two-year bond off 3.8 Canadian cents to yield 1.184 percent, and the benchmark 10-year bond down 34 Canadian cents to yield 2.243 percent, its highest level in nearly 15 months.

Reporting by Solarina Ho; Editing by Theodore d'Afflisio

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