Published: Tue, 10 Mar 2009 14:24:25 +0100

Canadian Dollar Moves Higher as Market Sentiment Improves

(CEP News) - The Canadian dollar is at the mercy of general market sentiment and is extending its gains against the U.S. dollar following a boost in risk appetite.

Monday was a big day for USD/CAD as it broke through the key resistance level of 1.30 CAD, and hit a high of 1.3064. However, the pair was unable to hold the gains and now momentum has waned for the moment. Risk appetite is dragging USD/CAD lower to just below 1.28 CAD.

With no major North American data to be released today, markets are taking direction from equity markets. Overnight, U.S. equity futures received a boost following positive news in the U.S. banking sector.

There are expectations that Citigroup could release stronger-than-expected earnings for the first quarter. According to an article in the New York Times, an internal memo from the bank said the firm earned more than $19 billion in the first two months of 2009.

The USD/CAD has extended its gains following comments from Fed Chairman Ben Bernanke, who spoke before the Council of Foreign Relations in Washington. Bernanke said the U.S. government currently remains committed to ensuring major banks have the capital necessary to weather the recession and to meet their commitments.

George Davis, chief FX technical analyst at RBC Capital Markets, said yesterday's failure to close above 1.3017 points to a corrective move lower. However, he is still bullish on the cross. "USD/CAD will have to close below 1.2485 in order to neutralize our bullish view," he said.

Although USD/CAD is weaker this morning, not many currency strategists are willing to call an end to U.S. dollar strength. Strategists have said they will need to see a close below 1.2750 to cause a shift in momentum.

Jacqui Douglas, currency strategist from TD Securities, said she is skeptical the U.S. dollar will be able to hold major gains above 1.30. She added there is a strong possibility that the cross bounces in a range, with support at 1.25 CAD and resistance at 1.33 CAD

Euro/USD up 1.80 cents to 1.2791

USD/CAD down 2.24 cents to 1.2789

USD/Yen down 0.76 points to 98.09

GBP/USD up 0.95 cents to 1.3871

AUD/USD up 1.28 cents to 0.6446

Euro/Yen up 0.81 points to 125.46

Euro/GBP up 0.70 pence to 0.9223

GBP/CAD down 1.77 cents to 1.7742

CAD/Yen up 0.72 points to 76.69

Euro/CAD down 0.50 cents to 1.6361

The U.S. Dollar Index is down 0.95 points to 88.06

All data taken at 9:17 a.m. EDT

By Neils Christensen, neilsc@economicnews.ca, edited by Stephen Huebl, shuebl@economicnews.ca