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Canadian Dollar Weakens Against Majors

The Canadian dollar lost ground on Wednesday morning as crude prices dived to more than a 7-month low on concern over the banking sector in Spain escalated fears over the euro zone debt situation.

Further, a strong dollar also weighed on oil prices. Light Sweet Crude Oil (WTI) futures for July delivery lost $1.64 to $89.12 a barrel. Yesterday, oil ended lower on a strengthening dollar and investor concerns over the euro zone crisis.

Worries over the eurozone debt crisis increased after Bank of Spain Governor Fernandez Ordonez decided to quit the post one month ahead of schedule, handing the responsibility of dealing with the country's deepening banking sector crisis to a successor.

Ordonez, who came under heavy criticism following the recent nationalization of Bankia, met Prime Minister Mariano Rajoy on Tuesday and conveyed his decision to leave on June 10 instead of July 12, reports say citing a statement from the Bank of Spain.

Meanwhile, according to the Financial times, the European Central Bank has blatantly rejected Spain's plan to recapitalize the troubled lender Bankia using sovereign bonds and then swapping them for cash at the ECB's three-month refinancing window.

Bankia, one of the largest banks in Spain, had asked for a whopping EUR 19 billion state aid on May 25 after receiving EUR 4.5 billion in rescue funds in 2010.

The Canadian dollar slipped to 76.84 against the yen, its lowest level since February 7. The next downside target for the loonie-yen pair is seen around the 76.0 level.

Against the US dollar, the loonie fell to a 5-day low of 1.0293 around 6:50 am ET. The Canadian currency is presently trading at 1.0272 and is targeting the key 1.03 mark in the near-term.

The loonie that jumped to nearly a 2-year high of 1.2764 against the euro in early Wednesday Asian deals pulled back to below 1.28 in the early European session. If the Canadian dollar weakens further, likely support is seen around the 1.2850 level.

Euro area economic sentiment declined more than expected in May to its lowest level in nearly three years, as the worsening economic situation damped firms' confidence, particularly those in the manufacturing, retailing and services industries.

The European Commission said Wednesday that the economic confidence index declined to 90.6 in May from a revised reading of 92.9 in April. Economists were forecasting the a drop in the index to 91.9. This was the weakest reading since October 2009.

Looking ahead, the U.S. pending home sales report for April is due at 10:00 am ET.

by RTTNews Staff Writer

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