By TraderVox.com
Tradervox.com (Dublin) – The Canada’s dollar has dropped from its strongest level in three weeks against the greenback as concerns about the US budget rose. There is increased speculation that the budget debate will derail the US economy, which is Canada’s largest trading partner. The Canadian dollar had increased earlier as euro zone finance ministers agreed to give Greece the bailout fund with easier terms. The Canadian dollar had also appreciated as the US economic data showed that the economy is recovering.
The Canadian dollar dropped as the crude oil prices dropped and US Senate approach to fiscal cliff issue boosted the demand for safe haven assets. According to Greg Moore, who is a currency strategist in Toronto at Toronto-Dominion Bank, the market is focusing on external issues such as the US fiscal cliff issue and the euro zone crisis. Loonie also dropped after the Bank of Canada Governor was named as the preferred candidate for the Bank of England chief. Canadian government bonds rose, pushing the benchmark yield down by three basis points to 1.73 percent, which is the lowest level in a week.
According to Steve Butler, who is the Bank of Nova Scotia’s managing director in Toronto, the market seems to be sitting back in a wait-and-see mode. He suggested that the market has been a little “too orderly.” The implied volatility for 3-months options on the US dollar against the loonie dropped to the lowest level since May 2001 of 5.55 percent. Crude oil prices dropped by 0.5 percent to $87.34 per barrel after rising by 0.6 percent in New York. The Standard & Poor’s 500 Index closed the day down by 0.5 after earlier gaining by 0.2 percent.
The Canadian dollar dropped by 0.1 percent against the dollar to trade at 99.46 cents per US dollar at the close of trading in Toronto. It had reached its strongest level since Nov. 7 of 99.06 cents earlier in the day.
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