C$ firms on "constructive" risk sentiment

Thu Dec 15, 2011 5:21pm EST
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By Claire Sibonney

TORONTO (Reuters) - The Canadian dollar firmed on Thursday, recovering from a two-week low in the previous session, as encouraging U.S. economic data and a solid Spanish debt auction eased fears that the euro zone debt crisis could spark a global recession.

U.S. first-time claims for jobless benefits fell to a 3-1/2-year low in the latest week, raising expectations that the weak labor market, which has bogged down U.S. economic growth, might be gaining traction. Signs of strength in the manufacturing sector also boosted investors' risk appetite.

There was also a sign of improvement in the European economy. A private gauge of euro zone manufacturing unexpectedly rose in December, although it remained at a level indicating a fourth straight month of contraction.

"Generally, risk sentiment seems to be a little bit more constructive today, though it remains to be seen if that lasts," said Shaun Osborne, chief currency strategist at TD Securities.

"The next couple of quarters are going to be a pretty tough slog for global growth and volatility is going to remain quite high, so that suggests that risk assets in all likelihood are going to underperform so the longer term outlook is still more geared towards Canadian dollar weakness."

The Canadian dollar ended the North American session at C$1.0357 versus the U.S. dollar, or 96.55 U.S. cents, up from Wednesday's North American finish at C$1.0396 to the U.S. dollar, or 96.19 U.S. cents.

Recent predictions for the currency heading into 2012 have been quite mixed. TD Securities on Wednesday updated its targets for next year, eyeing the currency at C$1.11 against the U.S. dollar, or 90.09 U.S. cents, by the second quarter, before ending next year around C$1.05, or 95.24 U.S. cents.

Scotia Capital's forecast on Thursday was more optimistic. Canada's triple-A status and developed bond market, and a soft landing in China - which suggests that commodity prices will be well supported - are expected to help the currency firm to C$0.98 versus the U.S. dollar, or $1.02, by the end of next year.   Continued...