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Canada dollar ends down after wave of IMM selling

TORONTO: The Canadian dollar ended significantly lower on Tuesday after speculative accounts engaged in a wave of selling of the currency on the International Monetary Market.

"It was triggered by a few speculative accounts out of the IMM selling Canada," said Steve Demers, director of foreign exchange with the National Bank of Canada in Montreal.

The IMM is the Chicago-based market for currency futures.

Canada's dollar closed at C$1.4647 (68.27 US cents) on Tuesday versus C$1.4583 (68.57 US cents) at the previous session's close.

Solid corporate interest in buying the Canadian unit helped contain its decline, Demers added.

"There's good two-way flows going through. Corporate Canada seems to have a little bit of interest in buying Canada above the C$1.4650 level as we move up," he said.

"For now, C$1.4650 to C$1.4660 remains good resistance. If we trade through that, I think we're going straight to C$1.4725. That's our major tech level, if you will."

A turn toward a more negative view of the Canadian currency makes a sustained breach of the C$1.4650 level quite likely, Demers said. "I think it's highly probable. The sentiment is shifting a little bit," he said.

The fact that most speculative accounts have previously abandoned the long Canadian dollar positions they embraced early in the year could actually help the beleaguered currency in the near-term, he added.

"If there is a surprise, it may be that in coming days we have good news and people have to buy back the Canadian dollar," Demers said.

However, with central banks in various locales either raising interest rates or poised to do so, the Canadian dollar will likely have a difficult time in coming sessions, he added.

"That's an environment, when other central banks are in tightening mode, Canada has a hard time appreciating in," Demers said. "I think many are starting to look at the short-term scenario and saying Canada has no room to appreciate on the upside."

Other market watchers said the currency may be dogged by perceived "political risk" in coming sessions as the federal Liberal party's convention on March 16 to 19 heightens concerns that Canada's widely respected finance minister, Paul Martin, may be leaving politics.

Data releases that could affect the currency later in the week include US retail producer prices on Thursday, consumer prices on Friday, and Canadian consumer price data on Wednesday.

In cross-trading against major currencies, the Canadian dollar was at 71.71 yen and at C$1.4187 against the euro. The Canadian dollar was at A$1.1102 against the Australian dollar.-Reuters