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

Thu Jul 12, 2012 4:44pm EDT
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* Currency ends at C$1.0186 vs US$
    * 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 closed stronger
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. 
    "Clearly a move higher in crude oil pricing is going to have
some impact on the Canadian dollar. It would contribute to
better offers in dollar/Canada, but it wouldn't be the sole
reason," said Jack Spitz, managing director of foreign exchange
at National Bank.
    "Attribute much of the price action to the spillover effects
of stop-losses being traded in euro/Canada. The market has been
selling euro and buying Canada."
    Spitz added that because the Canadian dollar has the
stronger fundamentals of the two currencies, he expects to see
more selling of the euro against it.
    The Canadian dollar closed 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.
    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 world economy prompted investors to
drive the U.S. dollar to two-year high against the euro. 
    Global equities and commodities also weakened as concerns
over the troubles in the euro zone, softer 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, causing the
higher-yielding Australian dollar to fall sharply. The Aussie
dollar touched a two-week low against the Canadian dollar of
C$1.0319, or 96.91 Australian cents. 
    "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.
    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 47 Canadian cents to yield 1.633 percent.