TORONTO: Canada's dollar hit a near two-week low against its US counterpart on Thursday but rallied to a two-year high versus the euro as concerns over the global growth outlook sapped investor appetite for riskier assets and currencies.
A surprise rate cut in South Korea and a 50-basis point reduction in Brazil underscored the widespread nature of the current slowdown, even though the Bank of Japan bucked the global trend and held off on further policy easing.
Data showing an unexpected drop in Australian employment in June also added to worries about world growth, increasing risk aversion and causing the higher-yielding Australian dollar to fall sharply, including a near two-week low against the Canadian dollar.
"The employment data in Australia which hit the Aussie ... dragged all the other commodity currencies with it," said Adam Cole, global head of FX strategy at RBC Capital Markets in London.
"And then the rate cut in Korea overnight as well I think markets are reading as telling us not very good things about global growth, Asian growth in particular and again, that's pushing the risky currencies down as a block and CAD is really just getting caught up in that."
Disappointment over the prospects for any near-term response by the US Federal Reserve also weighed. Recent data showing slower growth in Europe, China and the United States and a poor start to the second quarter corporate earnings season had been encouraging hopes of a policy response.
However, the minutes of last month's Federal Reserve meeting, published on Wednesday, showed the world's biggest economy would have to weaken further before its central bank took any more easing steps.
At 8:11 a.m. (1211 GMT), the Canadian dollar stood at C$1.0237 versus the US dollar, or 97.68 US cents, slightly weaker than Wednesday's North American session close at C$1.0199 versus the US dollar, or 98.05 US cents.
Earlier, the domestic currency softened to as much as C$1.0245, or 97.61 US cents, its weakest level since June 29.
The Canadian dollar's June 29 low around C$1.0342 against the greenback was providing some support for the currency.
The Canadian dollar still outperformed against other major currencies including the euro on Thursday, rising to C$1.2454, or 80.29 euro cents, its strongest level since June 2010.
Dashed US stimulus hopes helped the greenback broadly, and that generally tends to help Canada outperform on the crosses, noted Cole.
Currency traders were also looking ahead to next week's rate setting announcement by the Bank of Canada for further direction on the Canadian dollar.
A Reuters poll showed the Bank of Canada is expected to keep interest rates on hold until the second quarter of 2013, as a slowing global economy hurts the domestic outlook and as Ottawa's new mortgage rules take pressure off the central bank to cool the country's housing market.
Canadian bond prices climbed across the curve. The two-year government bond added 4 Canadian cents to yield 0.973 percent, while the benchmark 10-year bond gained 39 Canadian cents to yield 1.641 percent.
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