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Canada dollar closes weaker in light trading

TORONTO: The Canadian dollar closed lower in light trading on Tuesday as currency traders trickled back into the market after the holidays.

The dollar closed at C$1.4518, or 68.88 cents, after hitting a new high of C$1.4410, or 69.40 US cents, on Monday when Canadian markets were closed for New Year holiday.

In the previous session on December 31, the Canadian currency wrapped up the year at a 19-month high of C$1.4433, or 69.29 US cents, in thin year-end trade.

"Things have been pretty quiet today," said Stephen Butler, director of foreign exchange at Bank of Nova Scotia. "There has certainly been some more liquidity than there has been for a little while, but the market doesn't really feel like its got a lot of direction to it."

Interest rate concerns rattled the markets for a second straight session with investors convinced that the US Federal Reserve will raise interest rates at its next policy-setting meeting in February.

The general consensus is that there will be at least a 25-basis point hike when the Federal Open Market Committee (FOMC) meets in early February.

This caused sharp drops in the North American equities markets including a 211-point, or 2.5-percent, dip on the Toronto Stock Exchange and a 359-point, or 3.2-percent, fall in New York's Dow Jones industrial average.

Sharply weaker commodity prices, particularly gold, also affected the dollar, with the price for an ounce of gold in New York falling $5.90 to $283.70.

Gold prices started 2000 lower on Tuesday as investors unwound long positions taken out as Y2K insurance, in sharp contrast to last week when gold recorded its highest fixing since the start of December on buying partly related to concern that the much talked about millennium bug would cause computer problems.

On the data watch, Butler said the markets were awaiting some important figures later this week and next week including US and Canadian December jobs data on Friday.

"We have about four weeks until the FOMC meeting. And until then people are going to be looking keenly at the economics and trying to get a grasp on how much we're really going to get out of the Fed," he said.

US nonfarm payrolls are forecast on average at 224,000 in December, down from 234,000 in November. The jobless rate is expected to stay at 4.1 percent. Closely watched hourly earnings are seen rising 0.3 percent after a tame 0.1-percent gain.

Canada's employment growth, which has shown a stellar performance this year, is forecast to have slowed to 29,625 in December after rising 59,900 in November.

In cross-trading against major currencies, the Canadian dollar was at 71.06 yen and at C$1.4951 against the euro.

The Canadian dollar was at A$1.0509 against the Australian dollar .

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CA/FACTOR1 MEIRP: Montreal Exchange bond futures pricing information Bank of Canada monetary conditions index (Reuters calculation) Canada's call loan or overnight lending rate CAD

Canadian dollar G10 trade-weighted index.-Reuters