March 3, 2014 / 3:04 PM / 3 years ago

Canada dollar weakens as Ukraine jitters lift greenback

TORONTO (Reuters) - The Canadian dollar weakened on Monday as safe-haven buying of the greenback increased as Russian President Vladimir Putin's forces tightened their grip on the Crimea region.

Overseas data added to the pressure on the currency after data showed manufacturing activity in China contracted in February, falling for the third month in a row. The loonie is sensitive to economic developments in China, the world's second-largest economy and a major consumer of resources.

The Canadian dollar pared some declines on data that showed Canadian manufacturers' prices climbed much more than expected in January, largely due to a weaker Canadian dollar.

But the currency was unable to overcome market concern about the situation in Ukraine. Ukraine said Russia was building up armored vehicles on its side of a narrow stretch of water closest to Crimea after Putin declared at the weekend he had the right to invade his neighbor to protect Russian interests and citizens.

"We're seeing risk-averse sentiment really dominate price action this morning," said Scott Smith, senior market analyst at Cambridge Mercantile Group in Calgary.

"Investors are really looking toward those safe-haven asset classes and safety is garnering a premium this morning, which is in turn dragging the loonie lower."

The Canadian dollar was at C$1.1085 to the greenback, or 90.21 U.S. cents, weaker than Friday's close of C$1.1074, or 90.30 U.S. cents.

Investors were also turning their attention to the Bank of Canada's policy announcement later in the week. With the central bank expected to hold interest rates at 1 percent, investors will be parsing its statement for any change in language.

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Bank of Canada Governor Stephen Poloz recently said that two months of stronger inflation in Canada has made the central bank feel a "little more comfortable".

"With the CPI data coming in a little better than analysts were expecting, it's given Poloz and the Bank of Canada a little more reason to be comfortable in terms of the inflation picture," Smith said.

"I don't really think they'll be changing either any language in the steatement or their outlook for inflation going forward."

Canadian government bond prices were higher across the maturity curve, with the two-year up 0.8 Canadian cents to yield 0.997 percent and the benchmark 10-year up 16 Canadian cents to yield 2.411 percent.

Editing by Peter Galloway

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