C$ posts biggest gain in 3 weeks on data, euro hopes

Tue Dec 20, 2011 5:02pm EST
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By Claire Sibonney

TORONTO (Reuters) - Canada's dollar had its heftiest gain in nearly three weeks against the U.S. dollar on Tuesday, helped by encouraging U.S. and German economic data, a successful Spanish bond auction and surging stock markets.

The currency, equities and other risk assets were also lifted at the expense of the safe-haven U.S. dollar by growing expectations that European banks will borrow large amounts from the European Central Bank at its inaugural three-year offer on Wednesday and use some of the money to buy government debt.

"Clearly it's been a strong day for equities and the U.S. dollar has been backpedalling virtually all day," said Jack Spitz, managing director of foreign exchange at National Bank Financial. "Price action has been short-covering in the euro and as a result the Canadian dollar has rallied."

Wall Street jumped 3 percent on Tuesday as traders eyed a seasonal "Santa" rally into the yearend. .N

"Strong correlations exist between equities and the Canadian dollar. The 3 percent pickup in the S&P has inspired some bids into the Canadian dollar as well," Spitz said.

The Canadian dollar ended the North American session at C$1.0303 to the U.S. dollar, or 97.06 U.S. cents, up sharply from Monday's close at C$1.0387 versus the greenback, or 96.27 U.S. cents.

Canadian inflation data briefly interrupted the currency's rise in the morning. Year-on-year inflation held steady at 2.9 percent in November, and core inflation was at 2.1 percent, slightly undershooting forecasts.

Overnight index swaps, which trade on expectations for the central bank's key policy rate, showed that traders scaled back bets on a Bank of Canada rate cut in 2012 slightly after the inflation figures.   Continued...