Dollar ends stronger ahead of ECB cash boost

Tue Feb 28, 2012 4:22pm EST
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By Andrea Hopkins

TORONTO (Reuters) - The Canadian dollar hit a one-week high against its U.S. counterpart and ended stronger on Tuesday as a looming injection of cheap cash by the European Central Bank boosted riskier assets and kept the U.S. dollar on weaker footing.

Risk appetite reigned as investors focused on the ECB's Longer Term Refinancing Operation (LTRO), an offer of cheap money on Wednesday aimed at providing support for companies that have been starved of investment funds.

The ECB's first operation in December helped fuel a rally in riskier assets by encouraging banks to borrow from the central bank and purchase higher-yielding European sovereign bonds. This helped bring the yields of debt-burdened countries such as Italy and Spain down significantly and allayed contagion fears stemming from Greece. <MKTS/GLOB>

"There is a lot of anticipation built up about the LTRO tomorrow and how exactly it will fall and how that should be interpreted," said Camilla Sutton, chief currency strategist at Scotia Capital.

"We haven't had a substantial move (in the Canadian dollar) since this morning ... but equities are ending the day in positive territory and the U.S. dollar is broadly weaker."

The Canadian dollar ended the day at C$0.9954 versus the U.S. dollar, or $1.0046, up from Monday's North American session finish at C$0.9992 versus the U.S. dollar, or $1.0008.

Early in the session the currency reached C$0.9941, or $1.0059, its strongest level since February 21.

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, although forecasts range from 200 billion to 750 billion euros.   Continued...