January 9, 2012 / 1:22 PM / 6 years ago

Canadian dollar weakens on euro-zone worries

TORONTO (Reuters) - Canada’s dollar touched to its weakest level in nearly three weeks against its U.S. counterpart on Monday on lingering effects of weak domestic employment data and worries about the economic prospects of the euro zone.

The Canadian dollar slumped to a low of C$1.0320 to the U.S. dollar, or 96.90 U.S. cents, its weakest level since December 20, down from Friday’s North American finish at C$1.0270 to the U.S. dollar, or 97.37 U.S. cents.

“Generally, (the Canadian dollar) has weakened off since earlier in January just on the back of euro, which has been driving broader U.S. dollar strength,” said Camilla Sutton, chief currency strategist at Scotia Capital.

“We’re seeing sentiment towards (the) euro deteriorate further as there’s no conclusive steps towards any resolution.”

The euro crawled back from a fresh 16-month low to the dollar on Monday as traders trimmed short positions, but it was vulnerable to further losses on worries over sovereign funding in the euro zone and the region’s economic prospects.

At 7:58 a.m., the Canadian currency stood at C$1.0274 against the greenback, or 97.33 U.S. cents, relatively flat from Friday’s close as a weak Canadian employment reading continued to weigh on the currency.

Canada’s economy added 17,500 jobs in December, but the jobless rate rose and the new positions were all part-time, further evidence the post-recession hiring surge has ended even as U.S. jobs growth finally picks up the pace.

Markets awaited a meeting on Monday between German Chancellor Angela Merkel and French President Nicolas Sarkozy, set to discuss ways to boost growth and finalize details of a deal to increase fiscal coordination in the euro zone.

Spanish and Italian bond sales this week will also be a focus, with few signs that investors have started 2012 with improved appetite for the region’s riskier investments.

Sutton expects the Canadian currency to remain in range in the near term of around C$1.02 and C$1.0424 against the U.S. dollar.

Bond prices were mostly lower with the two-year government bond, which is especially sensitive to Bank of Canada interest rate moves, down 1 Canadian cent to yield 0.936 percent, and the 10-year bond down 13 Canadian cents to yield 1.952 percent.

Reporting By Jennifer Kwan; Editing by Padraic Cassidy

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