Loonie rises ahead of ECB cash boost

Tue Feb 28, 2012 8:39am EST
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By Claire Sibonney

TORONTO (Reuters) - The Canadian dollar hit a one-week high against its U.S. counterpart on Tuesday as riskier assets priced in an injection of cheap cash by the European Central Bank that would boost liquidity for banks and ease borrowing costs for troubled nations.

Markets expect European banks to borrow about 500 billion euros ($670 billion) of funds to be offered by the ECB at Wednesday's long term refinancing operation (LTRO), although forecasts range from 200 billion to 750 billion euros.

Credited with lowering state borrowing costs for Italy and Spain, the initial December allotment of 489 billion euros of three-year loans also helped avert a euro zone credit crunch in January, money supply data suggested on Monday.

"It did give risk assets a pretty good boost last time just recognizing that this program was very helpful in providing liquidity and eliminating some of the immediate downside risk afflicting the euro area," said David Tulk, chief Canada macro strategist at TD Securities.

Currency investors seemed to overlook news that Standard & Poor's cut its ratings on Greece to "selective default" as Athens' efforts to lighten its debt burden was largely expected to trigger the downgrade.

They also took in stride the ECB's temporary suspension of Greek bonds as collateral for its funding operations as well as a solid Italian debt auction.

At 8:11 a.m., the Canadian dollar was at C$0.9959 versus the U.S. dollar, or $1.0041, up from Monday's North American session finish at C$0.9992 versus the U.S. dollar, or $1.0008. Earlier, the currency reached C$0.9941, or $1.0059, it's strongest level since February 21.

Tulk put near term support for the Canadian dollar around the parity level and resistance near C$0.9900.   Continued...

Canadian loonies, one dollar coins, are displayed in this posed photograph in Toronto, October 10, 2008.     REUTERS/Mark Blinch