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Canadian dollar down on commodity prices, technicals

TORONTO: The Canadian dollar ended sharply lower on Thursday with technical factors and commodity price weakness cited as the major negatives for the currency.

An early breakthrough support around the C$1.4550 to C$1.4650 area sent the Canadian unit skidding sharply lower as it moved through stop loss levels, traders said.

"I think it was mostly technically driven once we broke through the C$1.4560 level," said one currency trader with a major Canadian bank.

The Canadian dollar closed at C$1.4595 on Thursday, dropping significantly from Wednesday's close of C$1.4492.

Some "residual panic" over earlier equity market weakness may have helped undermine the currency in early trading, the trader added.

The current downtrend for the Canadian unit could push it to the C$1.4600 and C$1.4650 levels, retracing much of the gains the currency made in light trading in late December.

The Canadian dollar is likely to strengthen again once the current downturn is played out, the trader added. "But there is definitely a weakening tone for it for the next few days," he said.

After a fairly slow start, trading in the currency accelerated after it broke through C$1.4550, a level it bounced off repeatedly in earlier trading.

"It was heavy around the key levels, but it's been pretty light in the afternoon," the trader said, adding that some of the pressure on the Canadian dollar came from cross selling of the currency against the euro.

Marcel Kasumovich, associate economist at Goldman Sachs Canada, said other commodity-linked currencies have also surrendered earlier gains in recent sessions. "Commodities have started the year on a bit of a soft note, and commodity-linked currencies have given back (some of their) gains," Kasumovich said.

The fundamental outlook for the currency remains positive despite the recent volatility, he said. "I would call it trading voltaility rather than a change in fundamentals," he said.

Traders are also waiting for some important figures later this week and next week including US and Canadian December jobs data on Friday.

US nonfarm payrolls are forecast on average at 224,000 in December, down from 234,000 in November. The jobless rate is expected to stay at 4.1 percent. Closely watched hourly earnings are seen rising 0.3 percent after a tame 0.1-percent gain.

Canada's employment growth is forecast to have slowed to 29,625 in December after rising 59,900 in November.

In cross-trading against major currencies, the Canadian dollar was at 72.12 yen and at C$1.5064 against the euro. The Canadian dollar was at A$1.0493 against the Australian dollar.-Reuters