C$ weaker as Cyprus deal pressures risk assets

TORONTO: The Canadian dollar weakened against the US dollar on Monday after a bailout plan for Cyprus, which will tax bank deposits in exchange for a 10 billion euro ($13 billion) bailout, sparked a sell-off in riskier assets.

The weekend announcement broke with previous EU practice that depositors' savings were sacrosanct and led to worried Cypriots emptying cash machines on the island.

"It's rather surprising news, It did prompt a bit of a risk-off reaction in the markets initially.

That's understandable given the uncertainty we have still surrounding the situation there," said Shaun Osborne, chief currency strategist at TD Securities.

The Canadian dollar did pare overnight losses, prompted in part by slightly better securities transaction data, which saw foreigners acquire C$13.34 billion ($13.08 billion) of Canadian securities in January.

This was due mainly to the biggest acquisition of Canadian private corporate debt instruments since October 2001, according to Statistics Canada.

At 9:32 a.m. (1332 GMT), the Canadian dollar was trading at C$1.0217 against the greenback, or 97.88 US cents, higher than Friday's North American session close at C$1.0193, or 98.11 US cents. It had touched C$1.0251, or 97.55 US cents earlier on Monday.

"We saw some strong inflows in January. The numbers are not usually anything that moves the market to any significant degree

So, I don't think it's anything that's probably going to overshadow the broader focus on risk," said Osborne, noting the stronger correlation between the Canadian dollar and risk assets again.

"Those correlations did really weaken off quite dramatically at the start of the year. The focus was really on domestic developments.

But it's probably moving back toward a focus on external issues as a potential driver for the Canadian dollar."

It was outperforming most major foreign currencies except for its commodities-linked counterparts of the New Zealand and Australian dollars.

It touched its strongest level against the euro in nearly two months.

Canada's dollar is expected to trade between C$1.0200 and C$1.0280 on Monday, according to Scotiabank.

The price of Canadian government debt was higher across the curve, with the two-year bond up 3.3 Canadian cents to yield 0.972 percent, while the benchmark 10-year bond climbed 26 Canadian cents to yield 1.867 percent.