CANADA FX DEBT-C$ has largest single-day gain of 2012

Wed Jun 6, 2012 4:56pm EDT
 
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* C$ ends at C$1.0279 vs US$, or 97.29 U.S. cents
    * Largest single-day gain since November
    * Markets boosted by Fed, ECB stimulus hopes
    * Bond prices lower across curve

    By Jon Cook	
    TORONTO, June 6 (Reuters) - Canada's dollar had its largest
one-day jump of 2012 against its U.S. counterpart on Wednesday,
fueled by hopes that European officials would bail out Spain's
troubled banks and on expectations of further easing measures by
major central banks.	
    European sources said Germany and European Union officials
sought solutions for Spain's weakened banks, the latest worry in
the fiscally troubled euro zone, although Madrid has not yet
requested assistance and is resisting political
conditions. 	
    Analysts also said markets were reacting to hints of more
monetary accommodation from both the European Central Bank and
the U.S. Federal Reserve.	
    Sentiment rose after Atlanta Fed President Dennis Lockhart
said the Fed may need to consider additional monetary easing if
a wobbly U.S. economy falters or Europe's troubles generate a
broader financial shock. 	
    "It seems like the Fed is open to providing more easing in
the form of an extension of Operation Twist," said Charles
St-Arnaud, currency strategist at Nomura Securities in New York.	
    Fed Chairman Ben Bernanke testifies before the U.S.
congressional Joint Economic Committee on Thursday and could
provide hints on the possibility of further monetary easing.    	
    St-Arnaud said any easing measures would weaken the U.S.
dollar, pushing commodity prices and growth-linked currencies
higher. 	
    The Canadian dollar climbed to a session high of
C$1.0273 against the greenback, or 97.34 U.S. cents, its
strongest since May 31.	
    It also strengthened against most other major currencies,
with the exception of the Australian dollar. The Canadian dollar
weakened to a one-month low of C$1.0219 to the Australian
currency after data showed a surprising surge in Australia's
growth. 	
    On Wednesday the ECB resisted pressure to provide more
support for the euro zone's ailing economy at its regular
monthly policy meeting, holding its main interest rate steady at
1 percent. 	
    "There's a sense that the European Central Bank, while they
didn't act today, said that there would be some willingness at
least for them to contemplate providing stimulus should data
begin to deteriorate," said David Tulk, chief Canada macro
strategist at TD Securities. "That's given the euro a bit of a
lift, and pushed the Canadian dollar higher as well."	
    The Canadian dollar finished at C$1.0279 against
the U.S. dollar, or 97.29 U.S. cents, up from Tuesday's close at
C$1.0380 versus the greenback, or 96.34 U.S. cents.	
    It was the currency's largest single-day rise in percentage
terms since November, according to Thomson Reuters data.	
    St-Arnaud saw the Canadian dollar playing within a range
between a high of C$1.02 and a low of C$1.05.	
    On Tuesday the Bank of Canada held its key interest rate at
1 percent. However, the statement was still more hawkish than
many market players had expected, as the central bank did not
remove the possibility of a rate increase further down the road
should the Canadian economy maintain its momentum.
 	
    St-Arnaud, who back in April predicted a Bank of Canada rate
hike this summer, said the gloomier global economic climate
makes an upward move "conditional on the easing in the level of
uncertainty." 	
    Canadian bond markets retreated across the curve. The
two-year bond fell 14 Canadian cents to yield 1.057
percent, while the benchmark 10-year bond dropped 65
Canadian cents to yield 1.809 percent.	
    The Bank of Canada said on Wednesday its most recent sale of
bonds due in 2022 produced an average yield of 1.765 percent, a
record low for a 10-year auction. The 10-year yield recently hit
a record low of 1.615 percent.