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Canada dollar ends up, but said still vulnerable

TORONTO: The Canadian dollar ended slightly higher on Tuesday, but remains vulnerable to downward pressure after visiting its lowest levels since early January, traders said.

"I think as long as (the U.S. dollar) stays above C$1.4550 it's probably looking a little bit shaky. There's a lot of talk about some big stop losses over C$1.4620, which is the high so far this year," said one Toronto currency trader.

The Canadian dollar closed at C$1.4554 (68.71 U.S. cents) on Tuesday after closing at C$1.4568 (68.65 U.S. cents) in the previous session.

Its intraday low of C$1.4590 on Tuesday was the lowest level it has reached since it slipped to C$1.4615 on January 7.

The Toronto trader said the currency came under pressure from interest to sell the Canadian dollar against the yen overnight and in early trading. That interest has surfaced before and will probably persist until end of the Japanese fiscal year on March 31, he added.

European and International Monetary Market players also sold the Canadian dollar early in the session, the trader said, although other market sources reported a spurt of Canadian dollar buying in Chicago just before the close.

Model traders caught short U.S. dollars have been exiting positions since the U.S. dollar closed above C$1.4550 on Monday, he added.

"I'd say we're buying U.S. dollars on dips here, waiting for it to break through the top side," the trader said.

The U.S. dollar is strong against most other currencies as concerns mount that the U.S. Federal Reserve will tighten interest rates aggressively in the coming months, said Sal Guatieri, senior economist at the Bank of Montreal.

It was reported on Tuesday that U.S. industrial production jumped 1.0 percent in January, exceeding the forecast 0.6 percent rise.

In Canada, manufacturing shipments for December were up 1.3 percent over the previous month, surpassing analysts' expectations of a 1.0 percent increase.

Lower gold prices were another source of pressure on the currency, Guatieri added.

"Generally, we've seen commodity prices move higher, especially crude oil prices, and nickel prices as well," Guatieri said. "But it looks most of the commodity-linked currencies - including the Australian and New Zealand dollars - are weakening off, perhaps amid a more pessimistic outlook for commodities, given that Japan's economy is still quite fragile."

On Wednesday, the Bank of Canada releases the update to its semiannual monetary policy report; Governor Gordon Thiessen holds a news conference on the update.

U.S. Federal Chairman Alan Greenspan delivers his semiannual Humphrey-Hawkins congressional testimony on Thursday.

The U.S. producer price index for January will be released on Thursday, with the consumer price index following on Friday.

Trade data for December will be released in both Canada and the United States Friday.

In cross-trading against major currencies, the Canadian dollar was at 74.92 yen and at C$1.4297 against the euro. The Canadian dollar was at A$1.0907 against the Australian dollar.-Reuters