Canadian Dollar Erasing Losses After US Approves Cnooc-Nexen Deal

       By Karen Johnson 

    TORONTO--The Canadian dollar was dragged lower in the overnight session against the U.S. dollar, but was erasing losses Tuesday morning as the U.S. green-lighted Cnooc Ltd.'s (CEO) $15.1 billion acquisition of Nexen Inc. (NXY).

    The deal, though denominated in U.S. dollars, is expected to spark heavy demand in Canadian dollars, as Canadian shareholders are paid out and convert those funds to loonies.

    The US dollar is at C$1.0049, versus C$1.0071 just ahead of the U.S. approval, and C$1.0048 late Monday, according to CQG.

    The focus for the broader currency market Tuesday has been a statement from the Group of Seven leading economies, which reaffirmed a commitment to let market forces determine exchange rates, saying central bank policy will be focused solely on domestic objectives. The statement was seen as a bid to avert a potentially destabilizing round of currency devaluations.

    The statement comes two days before the Group of 20's finance ministers are set to convene in Moscow, where exchange rate policies are expected to be a leading topic.

    "This is essentially a 'no harm, no foul' call by the G-7 aimed at addressing worries over currency wars," TD Securites said in a note to clients.

    The Canadian dollar underperformed in the overnight session, along with some commody-linked peers. The loonie has been weighed recently by some disappointing domestic data and the slimmer yield advantage for Canadian 2-year bonds, relative to their U.S. Treasury peers.

    With that in mind, market participants will keep one eye on Ottawa Tuesday morning, where Bank of Governor Mark Carney and Senior Deputy Governor Tiff Macklem are discussing the central bank's views on the economy and monetary policy before a parliamentary committee.

    Mr. Carney will leave the central bank's top job this summer to take the top job at the Bank of England. Mr. Macklem is considered the leading contender to succeed him in Canada.

    Write to Karen Johnson at