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Canada dollar hits lows for year, rebounds slightly

TORONTO: The Canadian dollar ended down on Wednesday, hitting its lowest levels for the year -- and then recovering slightly -- after being assailed by a number of negative factors.

Technical issues, bond maturity and coupon payments, Japanese repatriation and "political risk" stemming from concerns about the status of Finance Minister Paul Martin and Prime Minister Jean Chretien were all cited as negatives for the stumbling currency on Wednesday.

"It still continues to bounce around," said one New York currency trader with a major Canadian bank. "I just think the trend seems to be downward for the Canada."

The Canadian dollar closed at C$1.4666 (68.18 US cents) on Wednesday versus C$1.4647 (68.27 US cents) at the previous session's close.

It skidded to the C$1.4690 area before retracing some of its losses. "I was surprised we didn't break through the (C$1.4700) figure earlier this morning when we got up there," the trader said.

Market talk points to stop loss orders above the C$1.4700 area, he added.

Conditions are volatile and many traders are avoiding staking out substantial new positions in the currency, the trader said.

"Right now, you're just seeing dribs and drabs that are going through the market. I don't think anybody's on much of a position at the moment," he said.

"I can't really nail it down, what's causing the weakness," the trader added.

Government of Canada coupon and maturity payments totaling C$9.3 billion were cited by some market watchers as another negative for the embattled currency.

News that Canada's annual inflation rate rebounded in February to 2.7 percent, the highest increase in prices since June 1995, failed to provide any support for the currency, despite providing added justification for the Bank of Canada should it elect to raise interest rates after a similar move expected next week from the US Federal Reserve.

"I would have thought that would have strengthened the Canada, so it just sort of surprised me a little that it hasn't," the trader said.

Other market watchers said the currency may be dogged by perceived "political risk" in coming sessions as the federal Liberal party's convention on March 16 to 19 heightens concerns that Canada's widely respected finance minister, Paul Martin, may be leaving politics. Rumours also continue to circulate about the possible resignation of Prime Minister Jean Chretien, despite his professed intention to lead the ruling Liberals in the next federal election.

Data releases that could affect the currency later in the week include US retail producer prices on Thursday and consumer prices on Friday.

In cross-trading against major currencies, the Canadian dollar was at 71.97 yen and at C$1.4176 against the euro. The Canadian dollar was at A$1.1104 against the Australian dollar. -Reuters