CANADA FX DEBT-C$ ends flat as IMF offsets oil rise, China hopes

Tue Oct 9, 2012 4:40pm EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article
[-] Text [+]

* 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 and closed only
slightly higher as a warning about slowing global growth from
the IMF weighed on the currency, offsetting support from rising
oil prices and from bets that China will move to kick-start
    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 current slump. 
    The fund also said Canada's economic growth would be slower
than it earlier forecast for both 2012 and 2013.
    "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."
    The Canadian dollar closed 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 rose broadly as investors
sought safer assets, with the benchmark 10-year bond 
adding 2 Canadian cents to yield 1.805 percent. The two-year
bond was unchanged to yield 1.138 percent.
    Weakness in the Canadian currency was limited by an
injection of more cash into China's money markets by the
country's central bank and by comments from the bank's governor,
which encouraged expectations that the world's second largest
economy would take further steps to spark growth.
    Oil prices also offered support. Oil jumped 2 percent to top
$114 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
    Toronto-Dominion's Alexander also suggested the IMF 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.