C$ Down But Off Lows As U.S. Dollar Advances

The Canadian dollar ended substantially lower Thursday as the U.S. dollar advanced and stocks, commodities and other risk-sensitive assets sold off.

It managed to recover somewhat from its earlier lows in more settled afternoon trading.

The U.S. dollar was trading at C$1.0633 at 3:43 p.m. EST (2043 GMT), from C$1.0623 at 8:00 a.m. EST (1300 GMT), and from C$1.0563 late Wednesday.

The greenback reached a high at C$1.0690, its highest level since Nov. 9, according to EBS via CQG, before surrendering some of its gains.

Analysts said the Canadian dollar's retreat Thursday was reflective of the broader move away from risky assets and towards the U.S. dollar rather than any specifically Canadian developments.

"Oil is still down $2. Gold's come back, but it's still a little bit softer [and] equities are all in the red," said Jon Gencher, director of foreign exchange sales at BMO Capital Markets in Toronto.

The Canadian dollar's retreat in recent sessions came at the same time as significant declines in its Canadian counterpart, he said.

Although trading has been somewhat volatile of late, the U.S./Canadian dollar pair remains essentially rangebound, Gencher said. "Volumes have been very, very light. [There's a] lack of conviction, a lot of players are on the sidelines," he said.

"Most of the other currencies were weaker today, and it was sort of a down day in some of the commodities, especially earlier in the day," said Aaron Fennell, senior market strategist at Lind-Waldock Canada in Toronto. Some commodities recovered partially in afternoon trading, he added.

"Overall, the market's just seemed to be a little edgy today, and there was some of that flight to the U.S. dollar, flight to quality trade that we've become so familiar with the last few months," Fennell said.

"The U.S. dollar's been really strong against all the major currencies except the yen," said David Pierce, director of GPS Capital Markets in Sault Lake City.

That dollar strength is accompanied by downward pressure on commodities prices, which in turn have a big impact on the Canadian dollar, he said.

Pierce said the U.S./Canadian dollar pair is sitting near a technically significant 12-month resistance line at $1.0662. "If we can push through and close above C$1.0662, I'd expect to see the Canadian dollar to continue to weaken tomorrow towards the C$1.0737 level," he said.

The downside space for the pair is "really wide open" until C$1.0236, Pierce said. "Really, most of the pressure and the trend has been for a stronger Canadian [dollar] against the U.S.," he said.

On a longer-term basis, Pierce expects the Canadian dollar to strengthen unless it breaks through some of the nearby technical levels. His forecast for the year end level for the U.S./Canadian dollar pair is C$1.0400.

"I think, for the balance of the year, we're going to see it in a range trade," said Lind-Waldock's Fennell.

Market players appear inclined to sell the U.S. dollar around the C$1.0640 area and buy it in a broad zone between C$1.0300 and C$1.0200, he said

"Because the speculators are thinking that way, I think it will start to carve out a range. Eventually, it will press the topside of that," although that's unlikely to happen until the New Year, Fennell said.

There are no significant data scheduled for Canada or the U.S. on Friday.

At 6:05 p.m. EST (2305 GMT), Bank of Canada Governor Mark Carney will speak to the Foreign Policy Association in New York on the topic "The Evolution of the International Monetary System."

A copy of his remarks will be released on the bank's website at 5:50 p.m. EST (2250 GMT). Carney will hold a news conference at approximately 7:00 p.m. EST (0000 GMT), the Governor will hold a press conference.

There are no significant Canadian data releases planned for Friday.