CANADA FX DEBT-C$ strengthens to nine-day high as oil, stocks rally

Thu Jul 14, 2016 5:03pm EDT
 
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(Adds analyst comments and details on Bank of Canada rate cut
expectations, updates prices)
    * Canadian dollar ends at C$1.2898, or 77.43 U.S. cents
    * Loonie touches its strongest since July 5 at C$1.2863
    * Bond prices lower across the maturity curve

    By Fergal Smith
    TORONTO, July 14 (Reuters) - The Canadian dollar
strengthened to a nine-day high against its U.S. counterpart on
Thursday as higher oil and stock prices supported the
risk-sensitive commodity-linked currency.
    Gains for the loonie come one day after the Bank of Canada
left its policy rate unchanged at 0.50 percent and stayed
optimistic about the economic outlook even as it cut its growth
forecasts. 
    "In times of uncertainty and fragility for markets it is not
unsurprising to see central banks stand pat and try to bolster
confidence," said Michael Goshko, corporate risk manager at
Western Union Business Solutions.
    The implied probability of a Bank of Canada interest rate
cut this year dipped to 16 percent, overnight index swaps data
showed. It had been above 30 percent in the week following the
British referendum vote on June 23 to leave the European Union.
 
    The Bank of England also stood pat on rates on Thursday,
surprising many traders who had expected a cut after the
surprise Brexit 'leave' vote.
    Still, two major U.S. stock indexes set fresh intraday
record highs after JPMorgan reported second-quarter
profits that beat estimates and as the BoE said it was likely to
deliver stimulus in August.  
Expectations of more central bank stimulus have contributed to
stocks' gains in the past week.
    Oil prices climbed as traders covered short positions a day
after crude futures were hammered. U.S. crude oil futures
settled up 93 cent at $45.68 a barrel. 
    The Canadian dollar ended at C$1.2898 to the
greenback, or 77.43 U.S. cents, stronger than Wednesday's close
of C$1.2986, or 77.01 U.S. cents.
    The currency's weakest level of the session was C$1.2987,
while it touched its strongest since July 5 at C$1.2863.
    Given recent weak Canadian trade data it was surprising that
Bank of Canada Governor Stephen Poloz did not take the
opportunity at Wednesday's press conference to discuss the
currency, Goshko added.    
    Canadian government bond prices were lower across the
maturity curve in sympathy with U.S. Treasuries as improved risk
appetite reduced the appeal of safe-haven assets.
    The two-year price fell 9.5 Canadian cents to
yield 0.542 percent and the benchmark 10-year 
dropped 47 Canadian cents to yield 1.053 percent.
    On Monday, the 10-year yield hit a five-month low at 0.935
percent.
    New home prices in Canada rose by a higher-than-forecast 0.7
percent in May from April, mainly on higher prices in Vancouver
and the Toronto region. 

 (Reporting by Fergal Smith; Editing by Nick Zieminski and James
Dalgleish)