Tags: Dollar

Dollar Slips Below Parity With Canadian Currency

Wednesday, 07 Apr 2010 07:44 AM

The dollar jumped versus the euro Tuesday as Greek borrowing costs soared and investors worried that a bailout plan for the country could fall apart.

Meanwhile, the dollar briefly fell below parity with the Canadian currency for the first time since July 2008.

The 16-nation euro dropped to $1.3396 in late New York trading from $1.3486 late Monday. Investors are worried that a European bailout plan involving the International Monetary Fund will not be able to contain the country's debt problems after reports that Greek officials want to try to avoid the IMF's involvement, which is a crucial part of the plan. Greek officials on Tuesday denied that Greece was seeking to revise the debt deal.

Debt woes in European countries, particularly Greece, have pushed the euro down from above $1.51 in late November.

The Canadian currency, meanwhile, got a boost from rising energy prices. Canada is a major exporter of oil, and crude prices are circling 18-month highs. Canada also has one of the smallest budget deficits of the major economies.

The dollar dropped as low as 99.89 Canadian cents Tuesday. That's the first time the U.S. currency has dropped below parity with its Canadian counterpart since July 2008. In later trading, the dollar fetched 1.0001 Canadian dollars, down from 1.0031 Canadian dollars late Monday.

The sharp gains in the Canadian currency may cause the Bank of Canada to threaten to intervene in foreign exchange markets, said UBS analyst Geoffrey Yu. A stronger currency makes Canada's exports more expensive.

Meanwhile, the British pound slipped to $1.5277 from $1.5298 amid uncertainty over the outcome of Britain's upcoming election. British Prime Minister Gordon Brown has called for an election on May 6, but polls show a winner is uncertain. A "hung" government without a majority could be problematic given the U.K.'s debt problems.

Also Tuesday, minutes from the Federal Reserve's meeting in March showed that officials downplayed a pledge to keep rates low for an "extended period." The pledge won't stop it from boosting rates if the economy showed signs of picking up substantially or if inflation took off, they said.

The Fed has kept its benchmark rate near at a record low zero to nurture the recovery.

Raising interest rates can help stop inflation and slow economic activity, but tends to boost the value of a country's currency as investors seek higher yields.

In other trading, the dollar fell to 93.87 Japanese yen from 94.24 yen late Monday. On Monday, the dollar hit 94.76 yen, its highest point since August 2009.

An interest-rate hike by the Reserve Bank of Australia also helped boost the Australian dollar to 92.76 U.S. cents versus 92.10 U.S. cents late Monday. Rising interest rates can prompt investors to transfer funds as they seek out higher returns.

The U.S. currency rose to 1.0693 Swiss francs from 1.0624 francs.

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