TORONTO: The Canadian dollar dropped against its US counterpart on Monday, easing further from 13-month highs hit in the previous session as investors continued to book profits and reassess the impact of yet another round of US monetary stimulus.
Promised support from the US and euro zone central banks have propelled the risk-related Canadian currency up nearly 8 percent since its lows in June. The Fed announced last week that it plans to pump an extra $40 billion a month into the economy until jobs data improves, while the European Central Bank outlined its new bond-buying initiative earlier in the month.
But the new week started on a cautious tone, with market players asking what next.
"There are enough question marks out there, that even the Canadian dollar will take a pause given our linkages (to the United States)," said Don Mikolich, executive director, foreign exchange sales, at CIBC World Markets.
While action from the Fed was long awaited by investors, it has also triggered fresh fears about the United States, Canada's biggest trading partner.
"Obviously the thought of open-ended QE is a bit shocking and ... it shows how desperate the Fed is at the moment, so in a lot of ways it's not really a good thing," said Steve Butler, director of foreign exchange trading at Scotiabank.
At 2:43 p.m. (1843 GMT), the Canadian dollar was at C$0.9754 versus the greenback, or $1.0252, weaker than Friday's finish at C$0.9712 versus its US counterpart, or $1.0297.
Global equities and commodity markets also slipped on Monday as investors turned their focus back to the challenges facing the economy, including Europe's debt crisis.
"The market is probably a little bit overextended," added Butler. "I think it feels like the market is still looking to buy Canada but possibly holding out for better levels closer to C$0.98 now."
Analysts cited traders' record net long Canadian dollar position seen in data from the Commodity Futures Trading Commission released on Friday. It showed currency speculators again turned negative on the US dollar in the latest week.
Meanwhile, monthly international securities transactions were also Canadian-dollar positive. A report on Monday showed foreigners resumed their net purchases of Canadian securities in July, taking on C$6.67 billion after having reduced their holdings by C$7.76 billion in June.
Canadian government bond prices inched up across the curve as safe-haven assets came back into play. The two-year bond was up half a Canadian cents to yield 1.197 percent, while the benchmark 10-year bond added 20 Canadian cents, yielding 1.948 percent.
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