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Dollar falls as investors flee risk
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Malcolm Morrison
Toronto— The Canadian Press
The Canadian dollar CAD/USD-I closed lower Thursday, dropping closer to parity with the U.S. dollar for a second day as traders sought a safe haven in the greenback amid fears that Greece could default on its massive debt.
The loonie was down 0.44 of a cent at $1.0171 (U.S.) after going as low as $1.0103 earlier Thursday. The slide followed a drop of more than one U.S. cent on Wednesday.
“I think the risk is we could easily move toward parity because we're seeing a trend to risk aversion in markets and a lot of uncertainty stemming out of Europe,” said Camilla Sutton, chief currency strategist at Scotia Capital.
“As well, we're also seeing a softening in U.S. economic data overall. All of that puts some pressure on the Canadian economic outlook as well.”
The Canada's dollar hasn't closed below parity since the end of January but currency markets have been volatile as Greece's governing Socialist party tries to pass critical austerity measures that creditors have demanded in return for continued funding from a €110-billion ($155-billion) international bailout. It's extremely unlikely that another rescue deal will be offered if the Greek Parliament fails to back those new measures.
Investors are deeply worried that a default in Greece could hurt banks elsewhere and set off a catastrophic financial chain reaction.
“Markets are jittery because the risk of contagion spreading to other eurozone countries and banks is a key concern,” said Rahim Madhavji of Knighsbridge Foreign Exchange.
“If the value of debt holdings is repriced/restructured, on a leveraged basis, many banks will require additional capital and quickly, tightening lending and a call for capital all at the same time.”
The dollar has also suffered from sub-par economic data indicating the U.S. economy is slowing faster than thought.
Bad news from Canada's biggest trading partner this week included two regional manufacturing surveys — the Empire State and Philadelphia Fed indexes — both of which came in well below expectations.
“What transpires for the U.S. economy is, by default, also transpiring in Canada, so that's a big negative,” added Ms. Sutton.
The currency has also been pressured by oil prices, which have retreated because of the higher U.S. dollar and demand concerns.
The July contract CL-FT on the New York Mercantile Exchange shed early losses to move up 14 cents to $94.95 a barrel after crude fell more than $4 Wednesday.
Crude, which is priced in U.S. currency, tends to fall as the greenback rises and makes oil more expensive for investors holding other currencies.
Metal prices also stabilized with the July copper HG-FT contract unchanged at $4.12 a pound.
Gold GC-FT moved higher amid the market nervousness, rising $3.70 to $1,529.90 an ounce.
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