January 16, 2012 / 1:17 PM / in 6 years

Loonie ticks higher on oil, but Europe overhangs

TORONTO (Reuters) - Canada’s dollar edged higher against its U.S. counterpart on Monday, supported by stronger oil prices, but investors remained cautious in the aftermath of rating downgrades on several euro zone countries.

The euro held near a 17-month low versus the dollar and hit a 11-year low against the yen on worries mass downgrades by credit rating agency Standard & Poor’s of euro zone states, including France and Italy, and a Greek debt stand-off may aggravate the region’s debt crisis.

Stock and euro trading was choppy with U.S. markets closed.

Around 7:55 a.m., the Canadian dollar was at C$1.0200 to the U.S. dollar, or 98.04 U.S. cents, slightly higher from the currency’s Friday North American finish at C$1.0227 to the U.S. dollar, or 97.78 U.S. cents.

C.J. Gavsie, a managing director of foreign exchange sales at BMO Capital Markets, said developments from Europe will likely keep the Canadian currency in a tight range.

“It’s slight position squaring and I do believe the Canadian dollar will remain under pressure as we see more global news particularly of that emanating from Europe,” he said.

On the upside, Gavsie said oil prices helped to keep the Canadian currency slightly elevated and outperforming most of the crosses including the New Zealand and Australian dollars.

Brent crude rose above $111 on Monday on worries over supply disruptions after Iran warned Gulf Arab neighbors of consequences if they raised oil output to replace Iranian barrels facing international sanctions.

Gavsie said the Canadian currency would likely remain trapped between levels of C$1.0110 to C$1.0310 against the greenback.

Canadian bonds were mixed across the curve with the two-year government bond down 1 Canadian cent to yield 0.956 percent, while the Canada’s 10-year counterpart edged 4 Canadian cents higher to yield 1.921 percent.

Reporting By Jennifer Kwan

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