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The Canadian dollar faltered Thursday as the U.S. greenback shook off early losses against a basket of currencies, including the euro and the loonie.
The Canadian currency closed down 0.39 of a cent to 97.44 cents (U.S.), reversing an earlier sharp gain triggered by initial U.S. dollar weakness.
The loonie started the trading session at 98.24 cents, which added almost half a U.S. cent to Wednesday's strong advance of just shy of a full cent.
That gain broke a four-day losing streak against a weakening greenback amid further speculation about how the U.S. Federal Reserve will structure a second round of so-called quantitative easing to stimulate recovery. That measure involves the central bank printing money to buy up more government bonds and get money circulating into the economy.
Currency markets were also focused on South Korea Thursday where Group of 20 finance ministers and central bank governors are getting together Friday and Saturday to defuse international currency tensions as a festering dispute over exchange rates overshadows debate about reforming the world economy. Their deputies meet Thursday in Gyeongju.
And analysts said it made sense to take some risk off the table ahead of that meeting and buy into the safer haven of the U.S. currency.
"If you want to take off a bit of risk, sure, might as well do it before the G20 and add to it afterwards if you feel like it," said John Curran, senior vice-president at Canadian Forex, a Toronto-based currency trader.
"So taking a little bit of risk off for the event risk of the G20 makes sense."
In Asian trading overnight, the U.S. dollar had popped against the euro and yen because of comments by Treasury Secretary Timothy Geithner in The Wall Street Journal saying that the "major currencies...are roughly in alignment now," and that the U.S. is not trying to weaken the dollar.
That suggested to some investors that he thought the dollar's recent steep drop against the yen and euro should end, said Brown Brothers Harriman analysts in a research note. The dollar gave back its gains in European trading, but reversed course again in New York to end higher.
"Geithner and the Treasury make dollar policy, but when the Fed is printing money that sort of trumps all else," said David Gilmore of Foreign Exchange Analytics in Essex, Conn.
Still, the greenback's steep decline may mean it has bottomed out ahead of Fed policy makers' Nov. 2-3 meeting, he said.
Analysts say a worsening economic outlook could limit loonie strength against the U.S. dollar.
They point to Wednesday's assessment from the Bank of Canada that the Canadian economy likely suffered the worst quarter since the recession during the summer months, and still faces risks ranging from a potential global currency war to a collapse in the housing market.
"The Canadian dollar is going to lag just due to our proximity to the States," added Mr. Curran.
The dollar's fall also came amid sharply lower oil prices. The December contract on the New York Mercantile Exchange fell $1.98 to $80.56 a barrel, giving back a similar-sized gain from Wednesday, when a report showed that commercial crude inventories rose less than analysts expected last week.
Copper prices had also ran ahead as data showed that China's rapid growth slowed to a still strong 9.6 per cent in the third quarter from the year before. Though that was down from 10.3 per cent in the previous quarter it was still modestly higher than expectations. However, greenback strength helped push the December contract in New York down a penny to $3.78 a pound.
With files from The Associated Press