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Canada dollar down, Martin resignation talk cited

TORONTO: The Canadian dollar ended down on Tuesday after a quiet session that saw conjecture about the fate of Canadian Finance Minister Paul Martin putting some transient pressure on the currency.

The Canadian dollar closed at C$1.4555 (68.70 US cents) on Tuesday after closing at C$1.4526 (68.84 US cents) in the previous session.

"(It's been a) really quiet day. Obviously there was more focus on the other currencies, so Canada was taking a back seat to all that," said one Toronto currency trader.

A newspaper report pointing to the possible resignation of Canada's widely respected finance minister caused the currency to weaken off early in the session, but the report was not in any way definitive and the weakness proved short-lived, market watchers said.

"There was a little bit of action after there was that talk of (Finance Minister Paul Martin) stepping down," the currency trader said. "It was something that people reacted to initially, but it couldn't really carry it through that C$1.4550 level where some US investment accounts were seen selling (US) dollars."

Martin, who is believed to want to succeed Prime Minister Jean Chretien, has said he will run in the next election even if Chretien runs, and his office re-affirmed that position on Tuesday.

A small wave of interest in buying the euro against the Canadian dollar was the only real activity in the currency later in the session, market watchers said.

"Other than that, there was nothing out there, and, as you can see, the ranges pretty well show the story," the currency trader said.

Rick Egelton, deputy chief economist at the Bank of Montreal, said the story about Martin may have had minor impact on the currency on Tuesday.

"It moved it a tad, but I'm not sure that was a huge factor," he said.

The fact that it's widely suspected that Martin won't remain as finance minister if Chretien leads the Liberal government in another election may have diminished the market's concerns about Martin leaving the political scene, he added.

Market players are more worried about the possibility that US interest rates are headed significantly higher, and that is the main negative afflicting the currency, Egelton said.

"I think we're in the mode of interest rate worries, and I think that's playing on the dollar a little bit and kind of offsetting some of the good news we're seeing on the commodity price side," he said.

"I think there's going to be a bit of downward pressure on the currency as go through the Fed tightening," Egelton said, adding that there is some concern in the markets that the US Federal Reserve may move more aggressively on rates than the Bank of Canada.

Bank of Canada Governor Gordon Thiessen is scheduled to give a speech on the topic of "The conduct of monetary policy when you live next to a large neighbour" in New York on Thursday.

In cross-trading against major currencies, the Canadian dollar was at 72.95 yen and at C$1.3933 against the euro. The Canadian dollar was at A$1.1358 against the Australian dollar.-Reuters