Loonie Drops as Carney is Appointed BOE Governor

By TraderVox.com

Tradervox.com (Dublin) – The loonie has dropped from two weeks high against the greenback as the Bank of Canada Governor Mark Carney was appointed to head Bank of England starting July next year. This has sparked speculation over his replacement in Ottawa. The Canadian currency weakened investors went for safety amid concerns that Europe is struggling with the debt crisis. Risk appetite waned as budget deadlock is expected to push US economy into recession. The loonie also dropped as crude oil and stocks fell. According to UK Finance Minister Jim Flaherty, the government is preparing a special committee to recruit Carney’s replacement.

According to Camilla Sutton, who is a Toronto-based currency strategist at Bank of Nova Scotia, Carney’s appointment as the Bank of England Governor creates tremendous uncertainty for Canada. This is due to the fact that nobody knows who will replace him at the BOC. He suggested that the Canadian dollar will weaken off in the near future as such uncertainty takes its toll.

After the news of Carney’s appointment, the implied volatility gauge for 3-month options on greenback against the loonie dropped to 5.6425 percent, the lowest it has been since May 2001. The gauge then rose to 5.8675 percent.  According to Joseph Trevisani, the New Jersey Based market strategist at World Wide Markets Ltd, such volatility is expected to continue in the near future. He noted that there are too many things that can happen over the next three months that will push the Canadian dollar in one way or another.

Mark Carney will be the first foreigner to take charge of the Bank of England since its inception 318 years ago. Peter Gorra, a dealer for BNP Paribas SA in New York suggested that his move to BOE will hurt the Canadian dollar in the long-term but in the short term the dollar-loonie pair may remain at parity level.

The Canadian dollar dropped by 0.3 percent against the dollar to trade at 99.60 cents per dollar.

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