The Canadian dollar closed lower against the U.S. currency on Wednesday as investors looked to close the books on 2011 with a push to buy greenbacks, but flows were thin in a holiday-shortened week.
The euro fell to its lowest level against the U.S. dollar in nearly a year, one day before an important auction of long-dated Italian debt, while U.S. stocks slid more than 1 percent on concerns about the economy in early 2012.
The risk-off sentiment made for a topsy-turvy session for the Canadian dollar, which started the day stronger but quickly fell alongside the euro and North American stocks as investors scuttled to the safety of the U.S. currency.
We bounced very quickly as risks turned around and once we got back over that C$1.0180 level all bets were off and we saw the market scrambling for dollars, said Steve Butler, director of foreign exchange trading at Scotia Capital. It looks like we're going to have a pretty bullish move for the U.S. dollar going into year-end. It's got that feeling about it, .
The Canadian dollar ended the North American session at C$1.0242 to the U.S. dollar, or 97.64 U.S. cents. That was more than a cent weaker than session highs and below Friday's North American close of C$1.0208 to the U.S. dollar, or 97.96 U.S. cents. Markets were closed on Monday and Tuesday in Canada for the Christmas and Boxing Day holidays.
Butler said end-of-the year trading is all about flow, and the market was volatile in holiday-thinned trade.
Liquidity is a big issue for the market right now, a lot of people are still away so that might exaggerate moves a bit.
A strong sale of short-term bonds by Italy on Wednesday morning initially brought some relief to European markets, but concerns about Thursday's more challenging long-dated Italian debt auction eventually hurt investor sentiment.
Also weighing on the euro was a report showing euro-zone banks were hoarding cash injected by the European Central Bank rather than lending it out, viewed as a bad omen for the European economy in 2012.
U.S. stock indexes fell more than 1 percent in thin trading as investors feared what many expect to be a tough start to the year. The broad S&P 500 index erased its 2011 gains after just turning positive on the year in a rally last week.
Canadian government bond prices gained ground alongside safe-haven U.S. government debt. The two-year bond was up 2 Canadian cents to yield 0.935 percent, while the 10-year bond rose 51 Canadian cents to yield 1.955 percent.