October 31, 2011 / 1:38 PM / 6 years ago

Canadian dollar weaker after yen intervention, GDP supports

TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Monday, briefly sinking below parity, after Japan intervened to weaken the yen, sending the U.S. dollar higher against a range of currencies.

World equities dropped and commodity prices were also hit by the stronger dollar, which jumped after the Japanese intervention, while returning doubts over the EU’s plan to solve the debt crisis added to the cautious tone.

The U.S. dollar rose more than 4 percent against the yen, pushing the Canadian dollar to the session low below the one-for-one level with its U.S. counterpart. But the Canadian currency regained some ground as the U.S. dollar struggled to hold gains.

“We’ve got risk on the defensive as we go into the close of the month, and that dollar move did see us attempt back over parity, but clearly didn’t have momentum as the U.S. dollar has struggled a little,” said Jeremy Stretch, head of foreign exchange strategy at CIBC World Markets in London.

At 9:14 a.m. (1314 GMT), the Canadian dollar stood at C$0.9950 against the U.S. dollar, or $1.0050, down from Friday’s North American session close at C$0.9919 versus the greenback, or $1.0082.

Stronger-than-expected Canadian growth data boosted the Canadian dollar briefly.

Gross domestic product climbed 0.3 percent from the previous month as oil and gas extraction surged, beating market expectations of 0.2 percent growth. Year-on-year growth was 2.4 percent.

Stretch said the currency could trade in a tight range as month-end portfolio rebalancing implied U.S. dollar selling, but risk aversion would likely come back into play late in the session, boosting the safe-haven greenback.

“For now, month-end and fiscal year-end for the banking sector probably suggests that the range might be a little more constrained in dollar-CAD than otherwise anticipated because it might require more of an external bias to drive us out of that range,” Stretch said.

John Curran, senior vice president at CanadianForex, a commercial foreign exchange dealing firm, said markets will contend with plenty of event risk this week, starting with the Reserve Bank of Australia meeting Tuesday, followed by the U.S. FOMC on Wednesday, ECB on Thursday, U.S. and Canadian employment data on Friday and G20 meetings at the week end.

He said in a note that flows out of the Canadian dollar are likely to continue on the bond front, “given that the Bank of Canada forecast lower growth and made it clear they are not raising rates.”

“Look for support to come in at C$0.9950 and C$0.9880 while resistance above is at C$1.0025 and C$1.0075.”

Canadian government bond prices rose across the curve. The two-year bond was up 10.5 Canadian cents to yield 1.037 percent, while the 10-year bond gained 61 Canadian cents to yield 2.358 percent.

Editing by Jeffrey Hodgson

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