Canadian dollar holds near 11-week high on ECB, Fed hopes

Mon Jul 30, 2012 8:23am EDT
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By Claire Sibonney

TORONTO (Reuters) - The Canadian dollar hovered near an 11-week high against the U.S. dollar on Monday as expectations rose that the European Central Bank and the U.S. Federal Reserve will provide stimulus to support their struggling economies.

Positive sentiment from last week spilled over into Monday's trade after the leaders of France and Germany said they are "determined to do everything to protect the euro zone" and its single currency. That echoed ECB President Mario Draghi's pledge on Thursday to do whatever is necessary to protect the euro zone from collapse.

The rhetoric raised expectations that the ECB could take bold measures to lower soaring Italian and Spanish borrowing costs and supported riskier assets. Italy's benchmark 10-year borrowing costs eased below 6 percent and the country managed to sell bonds at the top of its planned issue range of up to 5.5 billion euros on Monday.

However, some investors doubt that ECB policymakers will deliver in line with market expectations when they meet on Thursday, with September shaping up to be a "make-or-break" month in the search for a resolution to the three-year-old debt crisis.

"I think we go into the ECB meeting with the market having quite elevated expectations that the ECB may do something," said Adam Cole, global head of FX strategy at RBC Capital Markets in London.

"On balance, I think if anything, there's probably scope for disappointment as the ECB rarely puts together policy in a hasty fashion at the best of times, and now, in particular there seems to be little incentive for them to do that."

At 8:05 a.m. EDT (1205 GMT), the Canadian dollar stood at C$1.0034 versus the greenback, or 99.66 U.S. cents, slightly firmer than Friday's North American session close at C$1.0044, or 99.56 U.S. cents.

Investors will keep an eye on any developments from U.S. Treasury Secretary Timothy Geithner's meeting with German Finance Minister Wolfgang Schaeuble and Draghi on Monday. The U.S. Treasury said they will discuss the U.S., European and global economies.   Continued...