CANADA FX DEBT-C$ hits 3-day high; helped by ECB, Bank of Canada

Thu Oct 4, 2012 3:30pm EDT
 
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* C$ strengthens to C$0.9805, or $1.0198
    * ECB says primed to buy bonds, seen helping crisis
    * Bank of Canada repeats hawkish tone on interest rates

    By Alastair Sharp
    TORONTO, Oct 4 (Reuters) - The Canadian dollar hit its
strongest level in several days against the U.S. currency on
Thursday, helped by signs the European Central Bank intends to
tackle the region's debt crisis and more hawkish talk from the
Bank of Canada.
    The resource-linked currency firmed as high as C$0.98 to the
greenback, or $1.0204, as gold and oil bounced and copper edged
higher and Canadian and U.S. equities markets also gained.
    A slower rise in the number of Americans filing new claims
for unemployment benefits also contributed to gains.
 
    But the main thrust came from ECB President Mario Draghi,
who said the central bank was primed to buy troubled euro zone
bonds and that conditions linked to such purchases need not be
painful. 
    "More than anything, it's Draghi being more than willing to
drive on, and this feel-good factor is sneaking over to the
equities and the loonie gets dragged along," said Dean
Popplewell, chief currency strategist at OANDA, referring to the
colloquial term for the Canadian currency.
    At 2:56 p.m. (1856 GMT) the Canadian dollar was at
C$0.9805 to the U.S. dollar, or $1.0198, up from C$0.9881, or
C$1.0120 on Wednesday. At C$0.98 to the dollar it was at its
strongest since Oct. 1. It had hit a four-week low on Wednesday.
    Popplewell pointed out, however, that Canada's dollar
remains stuck in a relatively tight range between C$0.9750 and
the psychologically important C$0.99 level.  

    CANADA STILL HAWKISH
    The Bank of Canada is still looking at the possibility of
raising interest rates, Deputy Governor Tiff Macklem said on
Thursday, in comments that contrasted with the easing stance of
the U.S. Federal Reserve.
    Macklem also said, however, that there is some slack in the
labor market that has not been taken up by the recovering
economy. 
    "I would suggest the outlook for global growth has
deteriorated and continues to do so, however for most investors
it's a matter of deciding whether it's the global growth outlook
or monetary policy that matters," said Camilla Sutton, chief
currency strategist at Scotiabank.  
    "For us, it's Fed action, particularly Fed action versus the
Bank of Canada's stance."
    The currency later slipped slightly before recovering after
the U.S. Federal Reserve released minutes from last month's 
meeting approving its third round of aggressive stimulus
measures, which showed the Fed considering adopting numerical
thresholds to serve as guideposts for policy. 
    Some investors brushed off any possibility that Canada's
central bank could raise interest rates at a time when many of
the world's other major economies are moving in the opposite
direction and global growth remains tepid.
    "There is not a snowball's chance in Hades that they can
raise rates anytime soon," said John Curran, senior vice
president at CanadianForex.
    He said a broader downswing in the price of oil would likely
weigh on the Canadian currency, which often follows the lead of
crude oil prices given the country's role as an oil and gas
exporter.
    Canadian government bond prices were lower across the curve,
with the two-year bond slipping 7 Canadian cents to
yield 1.094 percent, while the benchmark 10-year bond
 fell by 37 Canadian cents, to yield 1.759 percent.