CANADA FX DEBT-C$ ends stronger on more hawkish Bank of Canada

Thu Mar 8, 2012 4:46pm EST
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* C$ ends at C$0.9911 vs US$, or US$1.0090
    * BoC leaves rates on hold, but more upbeat
    * Greek bond swap hopes boost sentiment
    * Bond prices lower

    By Andrea Hopkins	
    TORONTO, March 8 (Reuters) - Canada's dollar
strengthened more than half a cent against the U.S. currency on
Thursday after the Bank of Canada sounded more upbeat about the
outlook for the domestic 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 1 percent for the 12th straight time. But the
market reacted to a more hawkish tone in the bank's statement by
driving up short-term bond yields and paring back rate cut bets.
    The commodity-linked currency also rose as the deadline on a
Greek private debt swap passed with signs that the deal would go
through, sparing Greece a chaotic default. 	
    "Canada is trading stronger on the back of A) the Bank of
Canada's policy statement being more hawkish than expectations,
and B) the Greek debt swap which appears to be slowly but surely
resolving itself," said Jack Spitz, managing director of foreign
exchange at National Bank Financial.	
    The Canadian dollar ended the North American
session at C$0.9911 to the U.S. dollar, or $1.0090, well above
Wednesday's session close of C$0.9982, or $1.0018.	
    The currency rose as high as C$0.9893 versus the greenback,
its strongest level since Monday.	
    In a statement, the central bank said the Canadian economic
outlook was "marginally improved", uncertainty around the global
economy had decreased and the profile for inflation was somewhat
firmer than it had foreseen.  	
    "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
    Higher interest rates tend to support a currency because
they can attract international capital flows.	
    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 was already on firmer ground heading into the
bank's statement, taking heart from signs that Greece would
complete a private debt swap.	
    Global stocks also posted one of their strongest gains in
nearly two months and the euro rebounded on optimism about
Greece and expectations for a solid U.S. payrolls report for
February, due on Friday.	
    The Canadian dollar was supported by the rise in oil prices,
with U.S. crude futures topping $106 a barrel, the second day of
gains. Canada is a major oil exporter. 	
    Markets however are expected to remain on edge ahead of the
formal announcement on the Greek deal, as well as the 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 was down 8.5 Canadian cents to
yield 1.166, compared with 1.139 percent before the Bank of
Canada statement.	
    The 10-year bond dropped 33 Canadian cents to
yield 2.006 percent.