CANADA FX DEBT-C$ strengthens vs US$, hits record against euro

Thu Jul 12, 2012 3:53pm EDT
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* C$ firmer vs US$, rallies on crosses
    * Gains mirror rise in oil price
    * Bond prices climb across curve

    By Claire Sibonney
    TORONTO, July 12 (Reuters) - Canada's dollar recovered from
a near two-week low against its U.S. counterpart and hit a
record high against the euro on Thursday, helped by gains in oil
prices on supply fears.
    Brent crude futures turned higher in late trading, jumping
above $101 a barrel, after the United States announced increased
sanctions against Iran, quashing sharp losses sparked by global
economic growth worries. 
    Global equities and commodities were still mostly weaker
however, as concerns over global growth and dimmed expectations
for any new near-term stimulus response by the U.S. Federal
Reserve sapped investor appetite for riskier assets and boosted
the greenback. 
    A surprise rate cut in South Korea on Thursday following a
50-basis-point cut by Brazil on Wednesday evening underscored
the widespread nature of the current slowdown, even though the
Bank of Japan bucked the global trend and held off on further
policy easing.   
    Data showing an unexpected drop in Australian employment in
June also added to worries about world growth, increasing risk
aversion and causing the higher-yielding Australian dollar to
fall sharply. The Aussie dollar touched a two-week low against
the Canadian dollar at C$1.0325, its commodity-linked
    "There's a bit of nuance at least in the dollar bloc where
the Australian dollar is weakening off the back of the sharply
negative employment report," said Mark McCormick, currency
strategist at Brown Brothers Harriman in New York.
    At 3:03 p.m. (1903 GMT), the Canadian dollar stood at
C$1.0186 versus the U.S. dollar, or 98.17 U.S. cents, slightly
firmer than Wednesday's North American session close at C$1.0199
versus the U.S. dollar, or 98.05 U.S. cents.
    Earlier, the domestic currency fell as far as C$1.0251, or
97.55 U.S. cents, its weakest level since June 29.
    Against the euro, the Canadian dollar surged to
C$1.2410, or 80.58 euro cents, its strongest level against the
single currency since it was created in January, 1999.
    Adam Cole, global head of FX strategy at RBC Capital Markets
in London, noted that it is typical to see the Canadian dollar
piggyback on U.S. dollar strength versus other major currencies.
    "Obviously because of the very close links between Canada
and the U.S., it tends to drag CAD with it," he said.
    Concerns about a slowing global economy prompted investors
to drive the U.S. dollar to two-year high against the euro.
    Looking ahead to Friday, markets are awaiting data on
second-quarter gross domestic product from China, which is
expected to show one of the few growth engines in the world
economy is faltering. 
    Currency traders looking at the Canadian dollar in
particular are also gearing up for next week's rate setting
announcement by the Bank of Canada for further direction.
    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 climbed across the curve, mimicking
gains by U.S. Treasuries against the flight-to-safety backdrop.
    The two-year government bond added 5 Canadian
cents to yield 0.969 percent, while the benchmark 10-year bond
 gained 45 Canadian cents to yield 1.635 percent.