CANADA FX DEBT-C$ flat as IMF report offsets China stimulus hope

Tue Oct 9, 2012 12:51pm EDT
 
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* Canadian dollar at C$0.9786 to the US$, or $1.0219
    * Hit by IMF report on slowing global growth
    * China stimulus hopes, higher oil prices provide support

    By Alastair Sharp
    TORONTO, Oct 9 (Reuters) - Canada's dollar gave up early
gains against its U.S. counterpart on Tuesday as a warning about
slowing global growth from the IMF weighed on the currency,
offsetting a boost from rising oil prices and bets that China
will move to kick-start demand.
    The International Monetary Fund said the global economic
slowdown is worsening, and cut its growth forecasts for the
second time since April. The IMF also warned U.S. and European
policymakers that failure to fix their economies' ills would
prolong the slump. 
    "When the IMF comes out and revises down global growth it
can lead to a weaker Canadian dollar because global investors
view Canada as an export-heavy, commodity-heavy economy," said
Craig Alexander, chief economist at Toronto-Dominion Bank. "The
Canadian economy is leveraged to the global business cycle."
    At 12:26 p.m. (1626 GMT) the Canadian dollar traded
at C$0.9786 to the U.S. dollar, or $1.0219, slightly stronger
than its Friday close of C$0.9789, or $1.0216.
    Most Canadian currency traders were away from their desks on
Monday for the Canadian Thanksgiving holiday.
    Canadian government bond prices also reversed course as
investors sought safer assets, with the two-year bond 
rising 1 Canadian cent to yield 1.133 percent, while the
benchmark 10-year bond added 10 Canadian cents to
yield 1.796 percent.
    The Canadian currency's weakness was limited by an injection
of more cash into China's money markets by the country's central
bank, which encouraged expectations that the world's second
largest economy would take further steps to spark growth.
 
    Oil prices also offered support. Oil rose to around $113 a
barrel on Tuesday after two days of losses, with tensions in the
Middle East and the risk of supply disruptions outweighing
concerns about sluggish global demand. 
    Canada is a major oil exporter, and rising energy prices
tend to support its currency.
    Some analysts said there was a sense in the market that
there was little new in the IMF report, and that its impact
might not last long.
    "It's a hope that the global economy is not getting worse,
that's what the view of the market is," said Charles St-Arnaud,
Canadian economist and currency strategist at Nomura Securities
in New York.
    "The IMF is behind the curve, everyone knows the global
economy is slowing, and I think there was some relief that the
downgrade was in line with what markets were expecting," he
said.
    Toronto-Dominion's Alexander also suggested the setback may
be short-lived.
    "The question is really how long that negative assessment
lasts and I would suggest the next data point that is strong
will be more than enough to offset any impact from the IMF
report," he said.