CANADA FX DEBT-C$ rallies on hopes for central bank moves

Tue Jun 19, 2012 1:25pm EDT
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* C$ at $1.0179 vs the US$, or 98.24 U.S. cents
    * C$ touches highest point since May 22
    * All eyes on central banks
    * Bond prices mostly lower

    By Allison Martell
    TORONTO, June 19 (Reuters) - The Canadian dollar firmed on
Tuesday as concerns about the disruptive impact of the euro zone
debt crisis on global economic growth encouraged talk that major
central banks would respond with stimulative measures.
    Canada's currency rose as high as C$1.0169 to the U.S.
dollar, its strongest point since May 22, as Canada's main stock
index rallied to a five-week high and U.S. equities rose. 
    "In general, I think it's the expectation of continued
stimulus by the Fed. Clearly they see that there's some
headwinds in the global economy," said Blake Jespersen, managing
director of foreign exchange sales at BMO Capital Markets.
    But Jespersen also said volume was low, with markets waiting
to see what announcements are made by the U.S. Federal Reserve
on Wednesday after its Federal Open Market Committee ends a
two-day meeting. 
    The euro rose against the dollar and stock markets gained on
Tuesday as investors bet the Fed will unveil more stimulus to
support a flagging recovery. 
    A European Union official said international lenders are
open to renegotiating the terms of Greece's bailout deal because
circumstances have changed, further boosting the euro against
the greenback. 
    At the same time, a surprise fall in British inflation
raised hopes that the Bank of England will take steps to support
the UK's economy.    
    Analysts expect the Fed to extend its long-term bond-buying
through "Operation Twist" by a few months from the current
deadline in June. 
    "Like most on the Street, we're looking for the Fed to
introduce further easing measures at the conclusion of its
two-day FOMC meeting tomorrow," Jack Spitz, managing director of
foreign exchange at National Bank Financial, wrote in a note to
    Spitz added that a simple extension of Operation Twist might
not be enough to spark a rally in risk appetite beyond the very
short term. 
    At about 1 p.m. (1700 GMT) the Canadian dollar was at
C$1.0179 versus the U.S. dollar, or 98.24 U.S. cents, compared
with Monday's close at C$1.0241, or 97.65 U.S. cents. 
    Canadian bond prices were mostly lower across the curve.
Canada's two-year bond fell 11 Canadian cents to
yield 1.032 percent, while the benchmark 10-year bond
 fell 50 Canadian cents to yield 1.768 percent.