TORONTO: The Canadian dollar ended nearly flat versus the US dollar on Tuesday, rebounding from early-session weakness as investors sold the US currency versus the Japanese yen.
"The yen just hit this massive air pocket ... and it's spilled over to the Canadian dollar and elsewhere in the foreign exchange market. It was clearly a theme of selling the dollar," said Adam Button, a currency analyst at ForexLive in Montreal.
That brought the Canadian dollar back from a sharp drop in the overnight session as investors avoided risk following signs that major central banks are easing off on their aggressive economic stimulus policies.
The Canadian economy's heavy weighting of commodities such as oil and base metals means that the currency generally falls when investors sour on risky assets.
The Canadian dollar ended the session at C$1.0189 versus the US dollar, or 98.15 US cents, its highest close in more than three weeks, and up a touch from Monday's North American session close at C$1.0190, or 98.14 US cents.
Overnight, the Bank of Japan held back from taking additional measures to tackle rising government bond yields, causing a selloff in global equity markets.
This follows recent speculation on when the US Federal Reserve would begin scaling back its quantitative easing. More aggressive stimulus action helps boost risk sentiment because it provides more support and growth for the economy.
Prices for Canadian government debt were higher across the maturity curve, with the two-year bond up 3 Canadian cents to yield 1.150 percent, and the benchmark 10-year bond up 28 Canadian cents to yield 2.171 percent.
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