CANADA FX DEBT-C$ touches 13-mth high on Fed stimulus hopes

Tue Sep 11, 2012 4:34pm EDT
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* C$ hits C$0.9713 vs the U.S., or $1.0295
    * Investors pin hopes to monetary easing by Fed
    * Canada reports biggest trade deficit on record
    * Bond prices fall

    By Solarina Ho
    TORONTO, Sept 11 (Reuters) - The Canadian dollar spiked to
13-month highs against its U.S. counterpart on Tuesday, as the
market priced in expectations the U.S. Federal Reserve would
pump additional money into its lackluster economy this week.
    The currency did see a modest dip following government data
that showed Canada had its biggest trade deficit on record in
July with exports and imports falling in an unexpectedly dismal
    In the United States, disappointing employment data last
Friday heightened the probability the U.S. central bank will
launch a third round of stimulus, a move that would put pressure
on the greenback against currencies like Canada's. The Fed kicks
off a two-day policy meeting on Wednesday.
    "The markets may be priced a little bit rich relative to
what we might get. We seemed to have priced in an awful lot of
Fed (quantitative easing)," said Shaun Osborne, chief currency
strategist at TD Securities.
     "I do hope we get something, because it'd be quite a messy
reaction if it's an 'on hold' kind of message from the Fed ... I
think there's potentially a bit of a split here between what the
markets might get and what the markets are priced for."
    The currency finished at C$0.9732 to the U.S.
dollar, or $1.0275 versus Monday's North American session close
at C$0.9775, or $1.0230.
    Earlier in the session it hit C$0.9713, or $1.0295, its
strongest level since Aug. 4, 2011. The Canadian dollar has
rallied about 5 percent this year, making it one of the best
performing major currencies. 
    If Canada's dollar breaks the C$0.97 mark, some think the
next major resistance level is C$0.9407, hit in July 2011.
    "On the longer term charts there is nothing in terms of
obvious support points, until we get back to the low C$0.94's,
if we do crack C$0.97. It is quite an important level
psychologically for the markets," said Osborne.
    Also bolstering the Canadian dollar's recent surge in
strength were last week's forecast-beating domestic jobs numbers
- expected to reinforce the Bank of Canada's already hawkish
stance - and the announcement of a European Central Bank
bond-buying plan aimed at helping the region's ongoing debt
    "The market is comfortable from both a technical and
fundamental perspective to push the Canadian dollar higher, and
in the absence of any cautionary talk from the Bank of Canada or
the finance minister it looks like it's going to continue to
trend that way," said Jack Spitz, managing director of foreign
exchange at National Bank Financial.
    Still, Osborne noted that traders largely "glossed over" the
poor domestic trade numbers.
    "For a small open economy that relies quite heavily on
trade, these numbers are not particularly constructive, and
might suggest the Canadian dollar is somewhat over valued," he
    Canadian government bond prices fell across the curve, with
the two-year bond slipping 2.5 Canadian cents to
yield 1.174 percent and the benchmark 10-year bond 
falling 26 Canadian cents, yielding 1.854 percent.