TORONTO (Reuters) - Canada’s currency fell against the U.S. dollar on Wednesday after earlier touching a one-year high, as weakening oil prices and a mixed showing on stock markets dragged the unit lower.
The currency turned south at midday as risk appetite waned, with U.S. stocks tepid after two days of strong gains, even as Toronto stocks staged a late session rally.
The Canadian dollar, like the equity market, often strengthens or falls depending on the risk appetite of international investors.
The currency’s weaker performance boiled down to it being a day of consolidation, said Camilla Sutton, currency strategist at Scotia Capital.
“We had a very big move yesterday across asset classes. Today we’ve had a little bit of give back,” she said.
Earlier on Wednesday, the Canadian dollar shot up to 95 U.S. cents on an upbeat tone that spilled over from Tuesday when the Reserve Bank of Australia raised rates, becoming the first central bank in the Group of 20 nations to tighten policy as the financial crisis abates.
The Australian move fed hopes that the global economy is recovering and will boost equity markets and demand for commodities, which also helped to send gold to a record high above $1,048 an ounce.
But oil prices slipped below $70 a barrel on Wednesday, boosted in part by a rebound in the greenback, which rose as the optimism that followed Australia’s rate hike dissipated and traders saw the currency’s decline as being overdone.
The Canadian unit finished at C$1.0624 to the U.S. dollar, or 94.13 U.S. cents, down from C$1.0596 to the U.S. dollar, or 94.38 U.S. cents, at Tuesday’s close.
The currency briefly ticked down after Canadian Finance Minister Jim Flaherty said the government and central bank are concerned about the broader weakness of the U.S. dollar and keep a close eye on volatility in the Canadian currency.
But the Canadian dollar quickly pared those losses.
Traders are now looking ahead to Thursday’s housing starts report, which is expected to show the number of groundbreakings fell to a seasonally adjusted annualized rate of 148,000 in September from 150,400 in August.
On Friday, the market will focus on domestic jobs data for September.
“If we see a strong number that could provide added incentive for the Canadian dollar to strengthen. But if we do see some weakness it could lead to a little bit more of retracement,” said Sutton.
Domestic bond prices were higher across the curve, taking much of their cue from the bigger U.S. Treasury market where prices rose on a well received 10-year bond auction, said Mark Chandler, fixed income strategist at RBC Capital Markets.
There had been concerns heading into the week about whether the market could support the onslaught of supply.
Canada also had a relatively successful two-year bond auction, he added. The C$3.5 billion auction produced an average yield of 1.422 percent and bids from primary dealers totaled more than C$8.6 billion.
The two auctions “went reasonably well. Equity markets gave back the gains they were showing in futures to start the day. Those factors have largely weighed on bond yields,” said Chandler.
The two-year bond ticked 3 Canadian cents higher at C$99.55 to yield 1.241 percent, while the 10-year bond climbed 7 Canadian cents to C$103.82 to yield 3.283 percent.
The Canadian market underperformed U.S. Treasuries, with the 10-year Canadian yield about 10 basis points above the U.S. curve, up from around 3.5 basis points on Tuesday.
Editing by Jeffrey Hodgson