CAD Regains Strength as Stocks Advance

The Canadian dollar erased its previous losses today as the global equities rallied, easing concerns for the world economy and improving prospects for growth-related currencies.
The speculation that the European leaders discuss the way to revive the region’s banking system brought some relief on the Forex market and improved outlook for Europe’s economy. The resulting advance of stocks had positive effect on commodity currencies, including the loonie. The Standard & Poor’s 500 Index advanced 2.3 percent. The Standard & Poor’s/TSX Composite Index reduced its losses to 0.7 percent by the close from the initial drop by 3.6 percent.
The currency earlier fell as the major Canada’s export, crude oil, subtracted 1.3 percent to $76.61 per barrel in electronic trading on NYMEX. Another negative factor for the Canadian dollar was the downgrade of Italy’s credit rating by Moody’s Investor Service. The rating agency reduced the government bond rating to A2 from Aa2 with negative outlook, explaining the decision by the following reasons:

(1) The material increase in long-term funding risks for euro area sovereigns with high levels of public debt, such as Italy, as a result of the sustained and non-cyclical erosion of confidence in the wholesale finance environment for euro sovereigns, due to the current sovereign debt crisis.

(2) The increased downside risks to economic growth due to macroeconomic structural weaknesses and a weakening global outlook.

(3) The implementation risks and time needed to achieve the government’s fiscal consolidation targets to reverse the adverse trend observed in the public debt, due to economic and political uncertainties.

USD/CAD traded at 1.0537 as of 22:30 GMT today after opening at 1.0543 and jumping to the daily high of 1.0656. CAD/JPY advanced from 72.62 to 72.82, following the drop to the low of 72.12. EUR/CAD bounced from 1.3889 to 1.4036.

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