Canadian dollar hits strongest level since February in central bank rally

Tue May 7, 2013 5:27pm EDT
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By Alastair Sharp

TORONTO (Reuters) - The Canadian dollar closed at its strongest level versus its U.S. counterpart since mid-February on Tuesday, rising with stock markets around the world in a risk rally fueled by signals that top central banks will keep supporting economic growth.

The Canadian currency also gained sharply against its commodity-backed cousin in Australia after that country's central bank cut interest rates.

Mark Chandler, head of Canadian fixed income and currency strategy at Royal Bank of Canada, said the Australian rate cut and the Canadian dollar's subsequent rally against the Aussie showed investors are more willing to bet on growth in Canada's biggest export market, the United States, than on a soft landing in Australia's biggest commodity customer, China.

"There is a bigger story developing this year," Chandler said.

"The nod went to Australia throughout much of the last few years," he said, referring to the Australian currency outperforming Canada's in that period, due in part to strong Chinese demand for Australia's resources, compared with slower U.S. consumption of Canadian commodities.

MSCI's global index, which tracks stocks in 45 countries, edged past its June 2008 highs in Asian trading on Tuesday with Japan's Nikkei stock index jumping in a delayed reaction to Friday's U.S. jobs data. The Tokyo market was closed on Monday.

The momentum continued in Europe, where the DAX .GDAXI hit a record following strong industrial data. <MKTS/GLOB>

The head of the European Central Bank underpinned the positive mood on Monday by saying the ECB was ready to trim interest rates again if needed, while the Reserve Bank of Australia cut rates to a new low of 2.75 percent on Tuesday and suggested it may do more.   Continued...