August 9, 2012 / 6:28 PM / 5 years ago

Canadian dollar rallies to 3-month peak on BoC, global markets

4 Min Read

TORONTO (Reuters) - Canada's dollar climbed to a fresh three-month peak against its U.S. counterpart on Thursday, buoyed in part by comments from the Bank of Canada, and as broader markets rose on hopes some central banks will act to stimulate their economies.

The Canadian currency touched C$0.9913 against the U.S. dollar, or $1.0088, its strongest since May 4 after Bank of Canada Governor Mark Carney on Wednesday argued the case for raising rates in an interview with the BBC in London, even though he said a global slowdown was having an impact on Canada's economy.

Against the euro, the Canadian dollar rose to C$1.2165, or 82.20 euro cents, and hit multi-month highs against sterling and the yen.

"It's mainly reminding the market that the Bank of Canada is not ready to cut and that the next move they have in mind is a hike," said Charles St-Arnaud, economist and currency strategist at Nomura Securities in New York.

But St-Arnaud said that was just a part of the bigger picture. The currency has gotten a boost in recent sessions as foreigners favor Canadian assets as a safe haven given the turbulent global economy.

The Canadian dollar ended at C$0.9920 versus the U.S. currency, or $1.0081, higher than Wednesday's close at C$0.9946 against the greenback, or $1.0054.

Also supporting the currency's move higher was steadiness in global equity markets. U.S. stocks stayed near four-year highs and European shares nudged closer to their peak of the year on Thursday. <MKTS/GLOB>

A key catalyst for the move higher in global stocks appeared to be data from China that showed annual consumer inflation hit a 30-month low last month and industrial output grew at it slowest pace in some three years, keeping alive hopes that policymakers would take more action to keep China's growth on track.

Stock markets around the world rose on Friday after U.S. jobs data eased concerns about global growth but supported hopes of further policy easing by the Federal Reserve. As well, last week's signal by European Central Bank President Mario Draghi that it may ease borrowing costs for Spain and Italy provided further optimism.

On Thursday, ECB governing council member Christian Noyer said the central bank is determined to bring down those borrowing costs and should be ready to intervene decisively in bond markets very soon.

"The general theme seems to be in place for the market expecting central bank action out of the ECB and the Fed," said John Curran, senior vice president at CanadianForex.

The next key market moving event was domestic jobs data due out on Friday.

For the third month running, Canada's job market is expected to have registered only small gains in July, matching lukewarm economic growth, if indeed employment grew at all. The median forecast in a Reuters survey of economists is for 9,000 new jobs, and the unemployment rate staying at 7.2 percent.

Global Influences in Focus

Activity in overseas markets overshadowed domestic data. Canada's trade deficit unexpectedly soared to a 21-month high in June on record imports of machinery and equipment, suggesting the domestic economy is still resilient and companies are using the stronger Canadian dollar to boost their competitiveness.

Elsewhere, Canada's hot housing market showed signs of cooling on Thursday as July housing starts slowed more sharply than expected, but housing prices were still climbing in June and analysts said a real slowdown may not come until late in 2012.

Jeremy Stretch, head of foreign exchange strategy for CIBC in London, said the currency would likely stay within a narrow range, between C$0.9920 to C$0.9970.

Canadian bond prices were flat to mostly higher. The two-year bond was unchanged to yield 1.162 percent, and the benchmark 10-year bond was up 12 Canadian cents to yield 1.810 percent.

Additional reporting by Jon Cook; Editing by James Dalgleish

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