Loonie weakens as investors cut risks

October 18, 2011 5:38 AM3 commentsViews: 8

Loonie weakens as investors cut risks

TORONTO – The Canadian dollar weakened slightly against its U.S. counterpart on Tuesday as investors moved to safer assets amid ongoing concerns about the European debt crisis and slower-than-expected Chinese growth.

World stocks stumbled and government bonds rose as the Chinese data and a warning on France’s triple-A sovereign credit rating prompted investors to cut risks.

Analysts said the Canadian dollar and other G7 currencies are likely to continue to weaken against the U.S. dollar as markets turn toward risk aversion again.

“All asset classes are taking cover this morning as the market prepares for disappointment on the European policy front,” John Curran, senior vice president at Canadian Forex, a commercial foreign exchange dealing firm, said in his morning research note.

“Poor U.S. economic prospects combined with ever-present European debt concerns will continue to weigh on the Canadian dollar as its growth/commodity currency status makes it susceptible to negative global growth news.”

At 8:52 a.m., the Canadian dollar stood at C$1.0230 to the U.S. dollar, or 97.70 U.S. cents, down slightly from Monday’s North American session close at C$1.0221 against the U.S. dollar, or 97.84 U.S. cents.

With euro-zone woes as a backdrop all week ahead of the October 23 summit of European leaders, the Canadian dollar will likely be under pressure in the next few sessions.

Canadian bond prices were higher across the curve with the risk-off mood. The two-year Canadian government bond rose 0.5 of a Canadian cent to yield 0.987 percent, while the 10-year bond climbed 13 Canadian cents to yield 2.275 percent.

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