(CEP News) - A late afternoon rally in equities on Thursday helped the Canadian dollar remain within its current channel against the U.S. dollar. The USD/CAD continues to have trouble holding gains above 1.25.

U.S. equities remain the main theme for risk aversion and are dominating currency markets. Strategists said they expect any rally in U.S. stocks to hurt the greenback, and for a sell-off to support it. According to strategists, the late afternoon rally on Thursday was a result of news that the U.S. government is working on a plan to help mortgage holders.

USD/CAD lost over 2 cents in overnight trading, dropping from yesterday’s highs of 1.2531 CAD to today’s session lows of 1.2282 CAD. The pair is stuck in the middle of today’s range and is down modestly 0.54 cents to 1.2380 CAD.

Friday’s data has not had much impact on today’s movements. U.S. consumer sentiment moved lower than expected in February, with two thirds of those surveyed forecasting the economic downturn to last five more years. According to a preliminary report from Reuters and the University of Michigan, the headline consumer sentiment index fell to 56.2 from a final reading of 61.2 in January, despite expectations by a survey of economists for a decline to a 60.2 level.

With little long-term direction, strategists are mixed as to further moves in the USD/CAD. Jacqui Douglas, currency strategist at TD Securities, said she is looking for the loonie to continue to hold gains, and favours selling rallies in the pair.

“(WE) think USD/CAD gains towards the upper end of the recent trading range will be difficult to sustain; the Canadian economy is clearly slowing but we think the USD remains somewhat over valued fundamentally given its relatively weaker fiscal position,” she said.

Sacha Tihanyi, currency strategist at Scotia Capital, said he is expecting the recent Canadian buying to be short-term momentum.

“We remain of the opinion that in a perfectly functioning world where everything is decided by economic fundamentals, that USDCAD should be trading somewhere north of 1.25,” he said. “However it would be foolish to not recognize that, yet again, fundamentals take a back seat to risk driven flows and the gyration of market sentiment between a thirst for risk or safety.”

Currency strategists will also be paying attention to the G7 meeting in Rome. They will be interested to see if the members address currency markets in their statement, which is expected to be released sometime between Friday and Saturday.

Euro/USD up 0.31 cents to 1.2892

USD/CAD down 0.62 cents to 1.2376

USD/Yen up 0.87 points to 91.81

GBP/USD up 1.79 cents to 1.4447

AUD/USD up 0.84 cents to 0.6608

Euro/Yen up 1.40 points to 118.35

Euro/GBP down 0.93 pence to 0.8923

GBP/CAD up 1.32 cents to 1.7881

CAD/Yen up 1.07 points to 74.19

The U.S. Dollar Index is down 0.72 points to 85.83

All Data take at 10:45 a.m. EST

By Neils Christensen, neilsc@economicnews.ca, edited by Sarah Sussman, ssussman@economicnews.ca

CEP Newswires - CEP News © 2008. All Rights Reserved. www.economicnews.ca

The Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News.

A copy of CEP News disclaimer can be found at http://www.economicnews.ca/cepnews/wire/disclaimer.

Posted in Categories: Canada, Economy, Forex, Releases, USA.

Subscribe by RSS Subscribe by Email