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Canada dollar ends lower on extensive cross selling

TORONTO: The Canadian dollar closed significantly lower on Tuesday after investors scrambled to buy the euro and other currencies against the Canadian unit in cross trading plays, market watchers said.

"A lot of the weakness that we saw throughout the day was driven on the crosses," said Steve Butler, a currency trader at Bank of Nova Scotia. "It was pretty broad-based -- we saw Canada selling against most of the other majors right across the board."

The Canadian dollar closed at C$1.4623 (68.39 US cents) on Tuesday after closing at C$1.4557 (68.70 US cents) in the previous session.

The selling pressure nudged the currency below the C$1.4600 level for the first time since January 7, and took it briefly to a new low for the year around C$1.4635 before it staged a partial recovery.

Buying interest in the US dollar that was bottled up during Monday's market close in the United States may also be helping propel the US dollar higher against its Canadian counterpart, one trader said.

The Canadian unit's slide lower on Tuesday came against the backdrop of faltering confidence in the currency, some traders said.

"It just seems like right now there's general lack of confidence for, I think, a bunch of reasons - that seems to be what's pushing it a bit weaker right now," Butler said.

One of the primary reasons the currency is stumbling is the expectation the Bank of Canada may not follow the US Federal Reserve all the way if it tightens interest rates twice again in the spring, he added.

Analysts said BA futures in Canada were only pricing in one 25-basis-point interest rate increase by the end of June, while Fed funds futures in the United States were pointing to two.

The fact the currency didn't manage to appreciate more decisively earlier in the year may be contributing to the pressure on it now, Butler said.

"I think a lot speculators had come in and bought the currency, so their disappointment has led to the fact that they're just basically bailing out of long Canada positions," he said.

Trading in the currency was fairly heavy on Tuesday, he said. "I'd say volumes were pretty good today, for sure," Butler said.

In cross-trading against major currencies, the Canadian dollar was at 75.79 yen and at C$1.4660 against the euro. The Canadian dollar was at A$1.0954 against the Australian dollar. -Reuters