TORONTO: The Canadian dollar weakened slightly against its US counterpart on Tuesday, as activity was limited by mixed economic signs from Europe and caution ahead of the North American earnings season.
Adding to the sense of risk aversion, market participants cited speculation that France's sovereign debt rating may get downgraded.
"It's not the first time we hear these kind of rumors going around, it's just that there isn't much for the market to focus on at the moment," said Audrey Childe-Freeman, global head of foreign exchange strategy at BMO Capital Markets in London.
At 9:20 a.m. (1420 GMT) the Canadian dollar was trading at C$0.9868 to the greenback, or $1.0134, compared with C$0.9857, or $1.0145, at Monday's North American close.
Business morale in the euro zone improved again in December, but unemployment hit a new record and households held back from spending before Christmas, suggesting the bloc's emergence from recession will be slow.
US stocks were set to open lower as an earnings season expected to show sluggish corporate growth gets under way.
BMO's Childe-Freeman said that while Canada's domestic outlook compares favorably to both the US and Australian economies, investors have chosen the Australian currency as a growth proxy for its closer ties to the improving Chinese market.
She sees the Canadian currency trading between C$0.98 and equal value to the US dollar in the next couple of months, notwithstanding an early return to the drama of US fiscal cliff and debt ceiling talks or signs that Canada's central bank will hike rates sooner than expected.
The two-year bond was up 4 Canadian cents to yield 1.185 percent, while the benchmark 10-year bond rose 10 Canadian cents to yield 1.930 percent.
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