CANADA FX DEBT-C$ rallies on "more hawkish" Bank of Canada

Thu Mar 8, 2012 10:02am EST
 
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* C$ rises as high as C$0.9915 vs US$, or US$1.0086
    * BoC leaves rates on hold, but more upbeat
    * Greek bond swap hopes boost sentiment
    * Bond prices mostly lower

    By Claire Sibonney	
    TORONTO, March 8 (Reuters) - The Canadian dollar
rallied against the U.S. dollar on Thursday after the Bank of
Canada sounded more upbeat about the outlook for the Canadian
and global economies, suggesting it is starting to think about
an eventual rate hike. 	
    As anticipated, the central bank kept its overnight lending
rate target at an ultra-low 1 percent for the 12th straight
time. But the market reacted to a more hawkish tone in the
bank's statement by paring back its bet on a rate cut, and by
raising its bet on a rate increase by the end of 2012.
 	
     The median forecast of global economists and strategists in
a Reuters survey last week was that the Bank of Canada would not
increase rates until the second quarter of 2013. 	
    The currency rose as high as C$0.9915 versus the
greenback, or $1.0086, following the announcement from C$0.9955,
or $1.0045, immediately before the bank's statement.	
    "All in all, I think it is less dovish than our January
statement and that should be positive for CAD and suggests that
maybe the Bank of Canada will tighten policy slightly ahead of
schedule, but that's still a 2013 story. It's not a 2012 story,"
said Camilla Sutton, chief currency strategist at Scotia
Capital.	
    "(The bank statement) shows a little bit more of a hawkish
bent. It's not enough to change their official bias," said Mark
Chandler, head of fixed income and currency strategy at RBC
Capital Markets.	
    At 9:43 a.m. (1443 GMT), the Canadian dollar stood
at C$0.9929 against the greenback, or $1.0072, up from
Wednesday's North American session close of C$0.9982, or
$1.0018.	
    The currency was already on firmer ground heading into the
bank's statement, taking heart from signs that Greece would
complete a private debt swap to avoid a chaotic default and that
the U.S. economy would deliver more upbeat news. 	
    New U.S. claims for unemployment benefits unexpectedly rose
last week, a government report showed on Thursday, but not
enough to change perceptions that the labor market is
strengthening. 	
    Canada's commodities-linked currency was also supported by a
rise in oil prices, with U.S. crude futures topping $106 a
barrel. 	
    Markets however are expected to remain on edge ahead of the
formal announcement on the Greek deal, as well as Friday's
keenly watched U.S. and Canadian monthly employment reports.	
    Canadian bond prices were mostly lower, underperforming on
the interest-rate sensitive short end of the curve. The two-year
bond added to losses, down 6 Canadian cents to yield
of 1.154, while the 10-year bond dropped 22 Canadian
cents to yield 1.993 percent.