February 27, 2012 / 1:38 PM / 6 years ago

Canadian dollar at more than 1-week low as risk rally fades

TORONTO (Reuters) - Canada’s dollar drifted back below parity against the U.S. dollar on Monday to its softest level in more than a week as concerns that rising oil prices could prevent an economic recovery weighed on riskier assets, even commodity currencies.

A hologram security feature is seen on the new Canadian 100 dollar bill made of polymer in Toronto November 14, 2011. REUTERS/Mark Blinch

While surging oil prices, spurred by worries over disruptions to Middle East supplies, can support the resource-linked Canadian dollar, worries about its impact on U.S. and global growth kept investors wary.

The currency tracked the broader move in overseas markets and the euro, undermining optimism about the European Central Bank’s second offering of low-cost loans to euro zone banks.

“It’s a very straightforward trade, as we’re seeing the Canadian dollar slump as risk appetite fades,” said Adam Button, currency analyst at ForexLive in Montreal.

“The oil story got a lot of traction on the weekend because we had such a sharp move up in oil, and it’s certainly having an effect in sentiment today, especially in the stock market,” he added, noting that oil prices retreated on Monday. <O/R>

At 8:03 a.m., the Canadian dollar stood at C$1.0034 versus the U.S. dollar, or 99.66 U.S. cents, down from Friday’s North American session close at C$0.9997 to the U.S. dollar, or $1.0003.

With the Canadian dollar shrugging off a global rally on Friday, the currency is even more vulnerable to swings to the downside, added Button.

Earlier in the session, the currency hit C$1.0050, its weakest level since February 16. Button said breaking beyond that level would open up the way towards C$1.0150, another cent lower for the Canadian dollar.

Canadian bond prices edged higher across the curve, mimicking U.S. Treasuries in the flight-to-safety bid.

The two-year bond was up 2 Canadian cents to yield 1.063 percent. The 10-year bond climbed 28 Canadian cents to yield 1.992 percent.

Editing by Jeffrey Benkoe

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