December 7, 2011 / 9:43 PM / in 6 years

Loonie ends flat; focus on EU summit

TORONTO (Reuters) - The Canadian dollar ended Wednesday’s session little changed against the U.S. dollar as investors held their bets due to uncertainty heading into Friday’s European Union summit.

Pessimistic comments from Germany and new figures exposing deepening stress among Europe’s banks dented financial market hopes of European leaders finding a turning point in the euro zone’s debt crisis at the summit.

Still, the Toronto Stock Exchange, the Dow Jones industrial average and S&P 500, ended on firmer ground, signaling that some riskier positions were back on in choppy, holiday-thinned trade. .N .TO

“It’s pretty much (flat) across quite a few currency pairs ... as for CAD, it’s certainly just been treading water here,” said Stewart Hall, senior currency strategist at RBC Capital Markets.

“Markets are caught between this negotiation process between the various EU members that is playing out across the wire services.”

The Canadian dollar ended the North American session at C$1.0103 to the U.S. dollar, or 98.98 U.S. cents, down slightly from Tuesday’s North American close at C$1.0096 against the U.S. dollar, or 99.05 U.S. cents.

The domestic currency’s lackluster performance on Wednesday followed a sharp rally in the previous session that saw the commodity-driven currency outperform other majors after the Bank of Canada sounded less dovish than expected in its policy announcement.

Looking further out, the Canadian is expected to soften against its U.S. counterpart over the next several months, before recovering to current levels and rallying through parity in one year from now, according to a Reuters poll of global foreign exchange strategists.

Bank of America Merrill Lynch was among the most bearish forecasters, predicting the currency could weaken as far as C$1.09 by the first or second quarter of next year.

“The CAD remains highly correlated to external factors, namely the global risk environment and the price of oil. We see increased downside risk to CAD, as the prospect for a global shock originating in Europe increases by the day and the Canadian economy shows signs of slowing,” BoAML FX strategists John Shin and David Grad said in a report to clients.

Canadian government bond prices pushed up across the curve, outperforming U.S. Treasuries amid nervousness that euro zone leaders and the European Central Bank will disappoint investors.

Canada’s benchmark two-year bond rose 7 Canadian cent to yield 0.890 percent, while yields at a two-year government auction fell to a multi-year low, as global growth fears fuelled demand for safe-haven assets, despite a less dovish-sounding Bank of Canada.

The 10-year bond jumped 67 Canadian cents to yield 2.057 percent, while the 30-year bond climbed C$1.37 to yield 2.626 percent.

Reporting By Claire Sibonney; editing by Rob Wilson

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