Canada’s Dollar Suffers from Risk Aversion

January 5, 2012 06:04 AM | 0 Comments
The Canadian dollar fell yesterday and continued its decline today against the US currency and the Japanese yen as optimism evaporated from the Forex market. Canada’s currency jumped versus the euro.

The Canadian dollar fell yesterday and continued its decline today against the US currency and the Japanese yen as optimism evaporated from the Forex market. Canada’s currency jumped versus the euro.

This year has started with good market sentiment, which didn’t last long, though. Analysts believe that the weak demand for German bonds and the record spread for Hungary’s credit-default swaps made traders’ mood to shift in favor of risk aversion. It’s not surprising to see pessimism returning to the market considering that Europe ended last year with none of its problems resolved.

The Canadian currency (also known as loonie) is tied to economic growth and as such is vulnerable to the negative impact of Europe’s crisis on the global economy. The loonie may yet receive help from the United States (Canada’s major trading partner) with its recovering economy. Indeed, the good sentiment on Monday was sparked by the signs of improving manufacturing in the USA. For now, though, the Canadian dollar remains weaker against safe currencies.

USD/CAD advanced from 1.0125 to 1.0137, while CAD/JPY fell from 75.68 to 75.62 as of 1:45 GMT today. EUR/CAD traded at 1.3098 today after it slipped from 1.3185 to 1.3104 yesterday.