CANADA FX-C$ on track for biggest gain this year

Thu Apr 12, 2012 1:19pm EDT
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* C$ at C$0.9950 vs US$, or $1.0050
    * On track for biggest daily gain since Nov
    * China data boosts risk sentiment
    * Fed, ECB signal possible stimulus moves
    * Bond prices mostly lower

    By Jon Cook	
    TORONTO, April 12 (Reuters) - The Canadian dollar rose
sharply against its U.S. counterpart on Thursday as equity
markets extended gains on positive global growth signs and the
hope of further stimulus action by central banks in the United
States and Europe.	
    Global stocks were lifted overnight after China's bank
lending trumped forecasts to spike to 1.01 trillion yuan ($160.1
billion) in March, a sign of fresh traction in Beijing's efforts
to ease monetary policy and boost credit creation to support the
cooling economy. 	
    That helped underpin a move higher by commodity-linked
currencies, which had weakened recently on signs of a cooling in
the Chinese and U.S. economies and an escalation of Europe's
lingering debt crisis.	
    "That has helped give a more positive tone in the market,"
said Charles St-Arnaud, Canadian economist and currency
strategist at Nomura Securities International in New York.      	
    Both the Canadian and Australian dollars hit session highs
against the greenback. 	
    Around 1 p.m. (1700 GMT), the Canadian dollar was
at C$0.9950 versus the U.S. dollar, or $1.0050, up nearly a cent
from Wednesday's close at C$1.0042 versus the U.S. dollar, or
99.58 U.S. cents. It was on track for its biggest daily increase
since Nov. 30.	
    The currency shrugged off soft U.S. data on Thursday that
showed an unexpected rise in weekly jobless claims that came in
the wake of last week's disappointing March employment report,
suggesting a cooling in the labor market recovery.
    However, St-Arnaud cautioned that the Easter holiday likely
contributed to the spike in U.S. claims.	
    The numbers followed comments by the Fed's influential
vice-chair Janet Yellen on Wednesday who left the door open to
further stimulus action if needed. 	
    "If there's room for further quantitative easing that would
be loosening of monetary policy, which is in turn negative for
the U.S. dollar," said Camilla Sutton, chief currency strategist
at Scotia Capital.	
    Markets were also encouraged by European Central Bank
Executive Board member Benoit Coeure who said further ECB bond
buying is an option as concern mounted over rising bond yields
in Italy and Spain. 	
    Data from Canada on Thursday offered little direction for
the Canadian dollar. A Statistics Canada report that revealed a
far smaller than expected trade surplus was muted by a rise in
February housing prices. 	
    This week's strong housing data and last month's jump in
employment have economists predicting the Bank of Canada may
raise its key lending rate, above its current 1 percent level,
well ahead of the Fed, which has said it intends to keep rates
near zero until late 2014.	
    The median forecast in a Reuters poll of 40 economists and
strategists shows the next interest rate hike will come in the
second quarter of 2013. 	
    "The main argument for the rate hike is centered around
what's going on in the housing market and household debt in
Canada," said St-Arnaud, who was the lone participant to predict
a rate hike as soon as next quarter.	
    The high housing prices, combined with extremely low
interest rates, have tempted Canadians to take on record levels
of debt, and experts say an estimated 10 percent of borrowers
could be in trouble if rates climbed to more normal levels.	
    "The bank could hike now mainly to force a change of
behavior on the side of consumers," St-Arnaud added.	
    However, none of the respondents saw a change in rates at
the next Bank of Canada policy announcement date, April 17. 	
    Canadian government bond prices were mostly lower, with
Canada's two-year bond edging down 1 Canadian cent to
yield 1.230 percent. The 10-year bond fell 30
Canadian cents to yield 2.050 percent.