CANADA FX DEBT-C$ gains with commodities, Fed minutes weigh

Wed Jul 11, 2012 4:43pm EDT
 
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* C$ ends at C$1.0199 vs US$, or 98.05 U.S. cents
    * Currency largely outperforms against majors
    * BoC on hold until Q2/2013, Reuters poll shows
    * Bond prices lower across the curve

    By Jennifer Kwan
    TORONTO, July 11 (Reuters) - Canada's dollar closed stronger
against the U.S. currency on Wednesday, helped by higher
commodity prices, but gains were limited by a
less-dovish-than-expected U.S. Federal Reserve and concerns
about Europe's debt crisis.
    U.S. stocks, typically a gauge of how willing investors are
to buy riskier assets, fell as minutes from the last Federal
Reserve meeting showed policymakers are open to the idea of
providing more economic stimulus, but that conditions might need
to worsen for a consensus to build. 
    "It looks like the Fed is content to wait things out a
little longer," said Steve Butler, managing director of foreign
exchange trading at Scotiabank.
    "Equities have turned around on a less dovish FOMC minutes
and just general malaise in the market. Risk sentiment seems to
be still on the negative side."
    After climbing early in the session, Canada's currency
managed to eke out a gain and ended at C$1.0199 versus the U.S.
dollar, or 98.05 U.S. cents, slightly firmer than Tuesday's
North American session close at C$1.0226 against the greenback,
or 97.79 U.S. cents.
    It drew support from firmer oil and gold prices. 
    "We're seeing a small boost to the Canadian currency coming
from higher commodity prices," said Charles St-Arnaud, economist
and currency strategist at Nomura Securities in New York.
    "That's helping to support the Canadian dollar. But there's
still concern out there about what's happening in Europe."
    
    HITS TWO-YEAR HIGH VS EURO
    Canada's dollar has ebbed and flowed in recent sessions on
global economic data and developments related to the euro zone's
financial stability.
    Most recently, a German debt sale underlined the growing
lack of faith by some investors in measures agreed by European
policymakers last month to combat the crisis, including help for
Spain's banks and allowing the region's new rescue fund to buy
government debt.
    These concerns were heightened by lack of clarity from euro
zone finance ministers on implementing the measures and
questions about when Germany's Constitutional Court would give
its verdict on the new regional bailout fund, known as the
European Stability Mechanism.
    The Canadian dollar outperformed against several major
currencies including the euro on Wednesday, rising to
C$1.2461, or 80.25 euro cents, its strongest since June 2010. 
    But the Canadian currency did weaken to its lowest level
since March against its Australian counterpart. 
    Currency traders were looking ahead to next week's rate
setting announcement by the Bank of Canada.
    A Reuters poll showed the Bank of Canada is expected to keep
interest rates on hold until the second quarter of 2013, as a
slowing global economy hurts the domestic outlook and as
Ottawa's new mortgage rules take pressure off the central bank
to cool the country's housing market. 
    Canadian bond prices were lower across the curve. The
two-year government bond was down 6 Canadian cents to
yield 0.995 percent, while the benchmark 10-year bond
 sank 16 Canadian cents to yield 1.671 percent.