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The Canadian dollar swooned to a two-month low Wednesday as continued worries about European sovereign debt drove investors into the perceived safety of the U.S. currency.

The loonie dipped as low as 96.58 cents (U.S.), down almost a cent from Tuesday's close of 97.56 cents. It recently inched back to 97.23 cents.

The euro, meantime, hit a 14-month low against the U.S. dollar on worries Greece's fiscal woes will spread to other indebted nations.

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"Contagion fears are driving this market," said Rahim Madhavji, president of Knightsbridge Foreign Exchange.

"Markets have yet to stabilize with European issues continuing to remain top of mind. Will the issue stop at Greece? Who is next? Rumours about Portugal's debt rating being downgraded. All this uncertainty is impacting equity and commodity markets and currency markets."


The currency hit parity last month and has gained 14 per cent against its U.S. counterpart over the past year. It has weakened in recent weeks though, as debt worries have sparked a flight into what's seen as the world's safest currency: the greenback.

"With the euro under pressure from the southern contagion, the markets are firmly in 'risk-off' and dumping European assets," said Andrew Busch, global currency strategist at Bank of Montreal. "Markets are...focusing on any negative news flow to drive the euro and equities lower."

The U.S dollar, as a result, is benefiting from the risk-aversion trade, said John Curran, senior vice-president at Canadian Forex.

The currency's volatility is causing extra headaches for Canadian exporters. An HSBC poll released Wednesday showed foreign-exchange fluctuations are the top concern over the next six months because it makes business planning more difficult.

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The Loonie: Investor Education

  • How you can benefit with the dollar at par
  • When analyzing the loonie, always look at oil
  • Why dollar parity could stick around
  • Video:The problem with parity
  • The 'new normal' for the loonie

In Greece, meantime, three people died in protests Wednesday as rioters tried to storm Parliament in Athens, hurling Molotov cocktails at police and torching buildings.

Tens of thousands of people took to the streets as part of nationwide strikes to protest new taxes and government spending cuts demanded by the International Monetary Fund and other European nations before heavily indebted Greece gets a bailout to keep it from defaulting.

In Berlin, Chancellor Angela Merkel called the bailout critical for all of Europe.

Understanding the Canadian dollar: A four-part series

  1. What should the value of the Canadian dollar be?
  2. When the Bank of Canada likes the rising loonie -- and when it doesn't
  3. Who sells Canadian dollars
  4. Why the Canadian dollar has been bouncing higher

With files from the Associated Press.

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About the Author

Tavia Grant has worked at The Globe and Mail since early 2005, covering topics from employment and currency markets to trade, microfinance and Latin American economies. She previously worked for Bloomberg News in Toronto and Zurich, writing on mining, stocks, currencies and secret Swiss bank accounts. More

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