Published: Mon, 27 Apr 2009 16:07:49 +0200

Canadian Dollar Shrugs off Negative Market Sentiment

(CEP News) - According to some market strategists, some Canadian dollar buying in London is helping to boost the Canadian dollar against the greenback, Monday morning.

The Canadian dollar is the second best performer against the U.S. dollar, but it is unlikely the loonie is benefiting from risk aversion sentiment, some strategists say. They pointed out that as soon as the short term flow is finished, the Canadian dollar could weaken significantly.

USD/CAD traded higher overnight but hit its high during the European session at 1.2189 CAD. The cross slumped just ahead of the North American open. USD/CAD is off the lows, but remains weak hovering just above 1.21 CAD.

Only the Japanese yen is performing better against the U.S. dollar compared to the loonie. The yen appears to be benefiting from risk aversion sentiment. Concerns over a flu pandemic are causing investors to flee into safe haven currencies like the U.S. dollar and the yen.

The World Health Organization is continuing to assess the global health threat but have not issued any warnings yet. On Sunday, the U.S. declared a public health emergency after 20 cases of swine flu were confirmed in America.

According to media reports, an emergency committee at the WHO will meet later on Monday to discuss declaring a health emergency.

Eight of the cases have been reported in New York, seven in California, two in Kansas, two in Texas and one in Ohio. Six cases of swine flu have also been reported in Canada; four in Nova Scotia and two in British Colombia. According to media reports, the virus originated in Mexico.

However, the Canadian dollar is shrugging off the negative sentiment. Sacha Tihanyi, currency strategist from Scotia Capital, said the Canadian dollar appears to be benefiting from positive sentiment last week following the Bank of Canada's Monetary Policy Report.

In the report, the Bank of Canada released a framework for quantitative easing, saying it would only use those measures as a last resort. Tihanyi said the reluctance from the Bank of Canada to use quantitative easing will help limit loonie weakness

Although with equities lower and negative sentiment ruling markets Monday morning, Tihanyi said he would be reluctant to look for more losses in USD/CAD.

"Given the general sentiment today, a selloff in Canadian dollars against the U.S. makes sense," he said. "But I would look for the Canadian dollar to make gains against the euro. I think the market is content to put more pressure on the euro."

Matthew Strauss, senior currency strategist from RBC Capital Markets, agreed that no concrete intervention from the BOC will continue to support the Canadian dollar. He is expecting USD/CAD to hold resistance at 1.2431 in the medium term.

"With no concrete market intervention measures announced by the Bank, this key resistance level was able to repel the advance in USD/CAD," he said. "Our bearish view will remain valid while USD/CAD trades below 1.2431 on a daily closing basis."

Euro/USD down 1.44 cents to 1.3099

USD/CAD up 0.16 cents to 1.2114

USD/Yen down 0.48 points to 96.68

GBP/USD down 0.75 cents to 1.4601

AUD/USD down 0.95 cents to 0.7137

Euro/Yen down 2.01 points to 126.65

Euro/GBP down 0.52 pence to 0.8971

GBP/CAD down 0.67 cents to 1.7688

CAD/Yen down 0.51 points to 79.81

Euro/CAD down 1.44 cents to 1.5868

The U.S. Dollar Index is up 0.61 points to 85.32

All data taken at 10:05 a.m. EDT

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