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Canada dollar ends down, but up from early lows

TORONTO: The Canadian dollar ended lower on Tuesday, but managed to rebound sharply from earlier, technically driven weakness, market watchers said.

Increased confidence that the Bank of Canada would, if necessary, match a 50-basis-point interest-rate increase from the US Federal Reserve also helped the Canadian unit recover from early lows, some observers said.

The Canadian dollar closed at C$1.4468 (69.12 US cents) on Tuesday after closing at C$1.4456 (69.18 US cents) in the previous session.

It tumbled to the C$1.4540 area in early North American trading after selling by European players pushed it through stop-loss levels around C$1.4520, market players said.

"I think the initial weakness was a technical move. Once we broke through the C$1.4520, which has been the high of the past few days, a few stop losses got triggered, IMM players got involved," said one currency trader with a major Canadian bank.

The Canadian dollar's weakness coincided with a surge in strength in the euro, and the Canadian unit began to reverse direction when the euro's strength collapsed, he added.

"Once the euro started weakening, then we saw flows back into North America, flows from Australia into Canada as well, and good corporate interest to buy Canada," he said.

Any move towards the C$1.4550 to C$1.4600 area will elicit buying of the Canadian dollar, the trader added.

Speculation that the Bank of Canada would be prepared to match a 50-basis-point interest-rate increase from the US Federal Reserve also supported the Canadian dollar, he added.

"I think that what's happened is that investors are reassessing the likelihood that the Bank of Canada will match a Fed move completely," said Marc Levesque, senior economist at Toronto-Dominion Bank.

He also saw "increased optimism" that the Canadian central bank would match a 50-basis-point move from the Fed as helping pull the currency back up early lows.

"I think that's giving the currency a bit of a kick," Levesque said.

Flows in the currency were very active, the trader said.

In cross-trading against major currencies, the Canadian dollar was at 74.41 yen and at C$1.4080 against the euro. The Canadian dollar was at A$1.0914 against the Australian dollar.-Reuters