C$ gives back most of its gains as equities fade

TORONTO: The Canadian dollar gave back most of its gains against the US greenback on Tuesday as investor uncertainty pushed equities lower and offset early data that showed a jump in Canadian and US trade deficits.

Long-term US Treasury yields rose to their highest of the year as investors reassessed the chances of a September interest rate hike by the US Federal Reserve, while global stock prices fell on uneasiness about US and Asian growth. The standoff between Greece and its creditors also curbed appetite for equities.

A record Canadian trade deficit of C$3.02 billion ($2.50 billion) in March boosted the loonie early in the session.

But the strength quickly faded and it was only the weakness of the greenback that kept the Canadian dollar in stronger territory as it lost ground against other major currencies.

"As we close out the day, the Canadian dollar is actually the worst-performing G10 currency other than the US dollar," said Jack Spitz, managing director of foreign exchange at National Bank Financial.

"It has given back much of the gains it had seen earlier in the session on a combination of strong corporate demand to buy US dollars," Spitz said.

The Canadian dollar ended the North American session at C$1.2072 to the greenback, or 82.84 US cents, just slightly stronger than the Bank of Canada's official Monday close of C$1.2092, or 82.70 US cents.

Investors were braced for election results in the western Canadian province of Alberta later on Tuesday.

Opinion polls show the long-ruling Progressive Conservatives are likely to be toppled from office for the first time in 44 years. While polls have proven unreliable in recent Canadian provincial elections, they show the left-wing New Democrats in position to win a majority government, while the right-wing Wild Rose Party is running a strong second.

Analysts have said a New Democrat majority win could have a negative effect at least temporarily on the Canadian dollar and on energy shares. The left-leaning party is expected to be far less accommodating to Alberta's powerful energy industry, having proposed reduced support for pipeline export projects and a review of oil and gas royalties in the resource-rich province.

Canadian government bond prices were mixed across the maturity curve. The two-year price was up 4.5 Canadian cents to yield 0.690 percent, while the benchmark 10-year fell 17 Canadian cents to yield 1.734 percent.