FIN: Dollar gives back gains on renewed risk aversion
TORONTO -- The Canadian dollar weakened against its U.S. counterpart on Wednesday, giving back gains from the previous day's risk rally as weak U.S. economic data kept investors worried that global economic growth was faltering.
Sentiment was hurt by a reading on service sector activity on Tuesday that showed growth in June, but at its slowest pace since February, heightening concerns about sluggish recovery.
Following a burst of bargain hunting, global stock indexes and U.S. futures fell along with the price of oil, copper and commodity-linked currencies such as Canada's.
"Risk rallies as we've seen on Tuesday are not sustainable if it's not supported by underlying fundamentals," said Matthew Strauss, senior currency strategist at RBC Capital Markets.
"Now we're seeing again an unraveling of that and even a reversal as the market focuses again on global growth concerns ... It's becoming increasingly clear that a smooth recovery is going to make way for a more patchy recovery."
Worries about a Europe-wide stress test for banks also played into the risk-aversion theme.
The euro, a recent proxy for risk appetite, slipped off seven-week highs as investors awaited details of plans to test the health of European banks.
At 8:08 a.m. ET, the Canadian dollar was at C$1.0585 to the U.S. dollar, or 94.48 U.S. cents, lower than Tuesday's finish at C$1.0557 to the U.S. dollar, or 94.72 U.S. cents.
From a technical perspective, Strauss said a descending trendline from March 2009 was in play at C$1.0643, as well as the double top at C$1.0679.
He said breaching those marks would expose the Canadian dollar to its weakest 2010 level at C$1.0853.
On the domestic data front, investors will keep an eye on the Ivey Purchasing Managers Index for June at 10 a.m. ET.
Canadian government bonds and U.S. Treasury debt prices firmed as investors played it safe while they assessed the risk of a double-dip recession in the U.S. economy.
The two-year government bond was up half a Canadian cent to yield 1.414 percent, while the 10-year bond added 6 Canadian cents to yield 3.066 percent.
