Canada Afternoon: C$ Up Moderately As Risk Aversion Subsides

TORONTO (Dow Jones)--The Canadian dollar ended moderately higher, but well off its earlier highs, Tuesday as investors became less concerned about risk, and the U.S. dollar retreated against several major currencies. The U.S. dollar was trading at C$0.9637 at 3:41 p.m. EST (2041 GMT), from C$0.9540 at 8:00 a.m. EST (1300 GMT), and from C$0.9669 late Monday. The U.S. dollar slumped as low as C$0.9527 in overnight dealings but regained considerable ground in North American activity. Some of the Canadian dollar's recovery Tuesday from lows touched in illiquid trading during the Remembrance Day holiday Monday resulted from a return to more normal trading conditions, market watchers said. "To an extent, it reflects the return of full trading desks and the unwinding of some of the volatility from yesterday," said David Watt, senior currency strategist at RBC Capital Markets. "Yesterday, it was like the yen had its day, and the U.S. dollar had its day. But the fundamentals under the yen remain abysmal, and the fundamentals under the U.S. dollar remain abysmal," Watt said. "It didn't take much to tilt the balance back towards carry trades and the cyclically sensitive currencies." On Tuesday morning, senior Canadian finance official said Canada has borne the brunt of the U.S. dollar's adjustment as the latter weakens against global currencies. Canadian Finance Minister Jim Flaherty will deliver that message to his G-20 counterparts and central bank governors when they meet in Cape Town, South Africa this weekend, the official said at a briefing, speaking on condition of anonymity. Some market watchers said those remarks contributing to selling pressure on the Canadian during in morning trading. RBC's Watt said the Canadian dollar is prone to underperform other currencies in the coming sessions if oil prices continue their retreat. "That's been one of the big things that's supported the Canadian dollar recently is that, no matter what happened, oil seemed to be surging towards $100. That seems to be coming off, to an extent," he said. But underperformance against other non-U.S. dollar currencies could be perfectly acceptable to Canadian authorities in the context of the finance official's comments Tuesday. "Given Canada's newfound concern about China and the Canadian dollar carrying bearing the burden of global imbalances, it's not a thing the Bank of Canada or the Canadian government are going to be terribly upset with, right now," Watt said. The Canadian currency's short term direction closely tied to oil prices, and overall perceptions of risk among global financial markets players, he said. Investors appear to be questioning the extent to which Canada can decouple from the U.S. economy, he added. "To an extent, it's like people don't have their blinders are now. They are exposed to both sides of the argument about the Canadian dollar," Watt said. "We could still do better over the next few days, but I don't think we're going to shoot the lights out," he said. There were no significant data releases Tuesday. On Wednesday, the leading indicator for October and new motor vehicle sales for September will be released. These are the exchange rates at 3:41 p.m. EST (2041 GMT), 8:00 a.m. EST (1300 GMT), and late Monday.

USD/CAD 0.9637 0.9540 0.9669
EUR/CAD 1.4054 1.3931 1.4068
CAD/JPY 115.14 115.39 113.80