C$ has biggest one-day jump of 2012 on hawkish BoC

Tue Apr 17, 2012 5:02pm EDT
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By Jon Cook

TORONTO (Reuters) - Canada's dollar logged its biggest one-day gain this year against the U.S. currency on Tuesday after the Bank of Canada surprised traders by suggesting that it was closer to raising interest rates as economic conditions improve at home and abroad.

The Canadian dollar was a leading gainer among major currencies, jumping nearly 1 percent after the central bank kept rates unchanged, as expected, but signaled that it was starting to think more seriously about tightening monetary policy.

"The prospect of higher interest rates has caused the Canadian dollar to strengthen," said Mark Chandler, head of Canadian fixed income and currency strategy at Royal Bank of Canada.

Higher interest rates or expectations of higher rates tend to help currencies strengthen by attracting international capital flows.

The Canadian currency firmed to a near one-month high at C$0.9865 versus the U.S. dollar, or $1.0137, after the release of the bank statement. It was at C$0.9958 immediately before the release.

Chandler also pointed to the broader increase in risk appetite, led by solid demand at a Spanish bill auction and upbeat German investor sentiment, which boosted commodity prices and resource-linked currencies. <MKTS/GLOB> <O/R> <MET/L>

The Canadian dollar finished at C$0.9902 against the U.S. dollar, or $1.0099, up nearly a cent from Monday's North American close at C$0.9997 versus the greenback, or $1.0003. It was the largest single-day jump since November.

The Bank of Canada has frozen rates at 1 percent since September 2010 after it became the first in the G7 to raise borrowing costs from lows hit during the financial crisis.   Continued...