Canada dollar buoyed by China hopes, hawkish Bank of Canada

Wed Dec 5, 2012 5:03pm EST
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By Solarina Ho

TORONTO (Reuters) - Canada's dollar touched a more than one-week high against its U.S. counterpart on Wednesday as investor sentiment remained upbeat a day after the Bank of Canada's statement on interest rates and signs that China's economic recovery was on track.

Canada's central bank held its overnight lending rate steady on Tuesday at 1 percent, as expected, but the bank's unwavering opinion that it may need to eventually hike interest rates, not cut them, boosted confidence in the currency, and it outperformed most other majors, including the euro.

"We're still seeing a bounce related to the hawkish tone in the Bank of Canada statement yesterday. That's helping to support Canadian dollar sentiment," said Karl Schamotta, a Calgary-based senior market strategist with Western Union Business Solutions.

The prospect of higher interest rates tends to support currencies by attracting international capital flows.

Meanwhile, new Chinese Communist Party chief Xi Jinping said the world's second-largest economy will maintain its fine-tuning of economic policies in 2013 to ensure stable economic growth, sparking a broad rally in equities, commodities and growth-related currencies.

The Canadian dollar finished the session at C$0.9917 versus the greenback, or $1.0084, firmer than Tuesday's North American close at C$0.9932, or $1.0068. Earlier, the currency touched C$0.9908, or $1.0093, its strongest level since November 27.

The currency also outperformed the commodity-linked Australian dollar. Earlier this week the Reserve Bank of Australia cut interest rates to a record-matching low of 3 percent after the country's resource-reliant economy was hit by lower export revenues, government cutbacks and a decelerating mining boom.

"The Bank of Canada certainly looks like the last man standing," said Schamotta.   Continued...