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Canada dollar drops as gold prices lose some luster

TORONTO: The Canadian dollar ended down on Monday after a day of roller-coaster trading driven by volatile good prices.

"I think it's in tandem with the gold price and the Australian dollar," said one Toronto currency trader.

"The market was very bullish on Canada, and because of the weakness in gold and Aussie, there's just a bit of a shakeout of those long Canada positions," he added.

The Canadian dollar closed at C$1.4465 (69.13 US cents) on Monday after closing at C$1.4410 (69.40 US cents) in the previous session.

The currency opened strongly, as the price of gold in London moved up $23 to $316.60 early on Monday, its highest level in almost four months.

But as the day progressed, gold prices receded, and the Canadian dollar skidded lower along with them, reaching lows around C$1.4470 before hitting some support levels.

The currency could descend to the C$1.4500 area before rebounding more decisively, the Toronto trader suggested.

"Canada still does still look good in the bigger picture, and I suspect it will head back (up) towards C$1.4350, or C$1.4250," he added.

Sal Guatieri, senior economist at the Bank of Montreal, agreed that gold was the dominant factor in Canadian dollar trading on Monday.

"I think gold prices were the main influence on the Canadian dollar. There was a lot of enthusiasm that gold producers would eliminate or cut back their forward sales of gold, and that was kind of boosting the price of gold and lending a pretty good tone to some of these commodity-linked currencies, especially countries that are major gold producers like Canada," Guatieri said.

"I've noticed that gold prices have backed off a bit this afternoon, and it seems to be weighing a bit on the Canadian dollar," he added.

The Canadian unit could also be vulnerable to a revival of fears about diverging interest rate policies between Canada and the US if Canadian economic data suggests the economy is slowing, he added.

But in the absence of any signs of economic slowing, the Canadian dollar is poised to continue improving, Guatieri said.

"I think the tone around the Canadian dollar is still positive, and we still expect it to appreciate gradually over the course of the year," Guatieri said.

In cross-trading against major currencies, the Canadian dollar was at 75.04 yen and at C$1.4049 against the euro. The Canadian dollar was at A$1.0913 against the Australian dollar. -Reuters