Loonie Drops against Greenback on Europe Crisis

By TraderVox.com

Tradervox (Dublin) – The Canadian dollar had advanced to an almost three weeks high, but speculations of worsening European debt crisis has forced the loonie to drop against the US counterpart. After Spain requested for international bailout, analysts are concerned that the next nation in line will be Italy which has debt problems of its own.

The debt crisis in the region seems to be affecting more nations. Further, investors are wary of riskier assets as Greece enters its finals days to an election to be held on June 17. The demand for safe haven is creeping into the market, but the yen advance has been clipped by the sentiments from IMF that the currency has been “moderately overvalued.”

The Canadian dollar had increased against most majors as risk appetite gripped the market on Spanish bank bailout; however this did not last long enough and concerns about Italy have already started to affect the market. Further, Canada’s crude oil exports dropped by 1.7 percent while the standard & poor’s 500 Index declined by 1.3 percent. According to Steve Butler of Bank of Nova Scotia in Toronto said that investors fear the current aid to Spain will be another bad-aid European Governments are offering and it might not solve anything in the short term. The effect of this is being seen on the option traders’ trend that is becoming bearish on the Canadian dollar.

The Canadian dollar depreciated by 0.5 percent against the US dollar to trade at C$1.0317 per US dollar. The Canadian currency had touched C$1.0201 earlier in the day, which is the strongest it had been since May 22.

Technical indicators are showing that implied volatility on the loonie against the Greenback for the one-month options decreased on June 7 to the weakest level last registered on May 10. Implied volatility is used by traders to quote when setting option prices; it signals the prediction of currency swing pace.

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