January 17, 2012 / 1:12 PM / 6 years ago

Loonie up on China data; shrugs off BoC decision

3 Min Read

TORONTO (Reuters) - The Canadian dollar edged higher against the U.S. currency on Tuesday morning as investors largely shrugged off the Bank of Canada's decision to leave rates unchanged, and instead drew strength from upbeat economic news from China and Germany.

The Bank of Canada held its key overnight interest rate steady at 1 percent, and said a stronger second half of 2011 meant the economy should reach full capacity three months earlier than it had projected.

It gave no hints of a planned rate increase, repeating what it said in its December decision that there was considerable monetary policy stimulus in the economy and the overall outlook was little changed from October.

"The market, as well as the Bank of Canada, is interested in what's going on globally," said Jack Spitz, managing director of foreign exchange at National Bank Financial.

"A muted reaction to the Bank of Canada's communique," he added.

Around 10:15 a.m., the Canadian dollar was at C$1.0145 to the U.S. dollar, or 98.57 U.S. cents, after climbing as high as C$1.0112, its strongest level since January 4.

The currency improved on its Monday finish of $1.0180 to the U.S. dollar, or 98.23 U.S. cents, supported by better fourth-quarter growth data from China and stronger economic sentiment in Germany.

The headlines also helped to lift broader investor sentiment and helped to send global stocks and the euro higher.

Camilla Sutton, chief currency strategist at Scotia Capital, said the better than expected economic data from China provides further evidence of a soft landing for the economic powerhouse, which should support commodity prices and commodity-linked currencies like Canada's.

China's economy grew slightly more than expected but at its weakest pace in 2-1/2 years, suggesting officials may try to boost growth in the near term through more stimulative monetary policy.

But the Canadian dollar largely underperformed the major crosses on Tuesday including the Australian and New Zealand currencies.

"Yesterday, Canada outperformed fairly markedly so I think it's simply give-back," said Sutton.

Canadian government bond prices were little changed across the curve, with the two-year bond unchanged to yield 0.968 percent. The 10-year bond ticked 1 Canadian cent higher to yield 1.933 percent.

Additional reporting by Claire Sibonney; editing by Rob Wilson

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