CANADA FX DEBT-C$ rises on hopes of central bank stimulus

Wed Jul 25, 2012 3:15pm EDT
 
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* C$ up at C$1.0142 vs US$, or 98.60 U.S. cents
    * Euro, stocks higher on stimulus hopes
    * Bond prices lower across the curve

    By Jennifer Kwan
    TORONTO, July 25 (Reuters) - Canada's dollar recovered from
a near two-week low on Wednesday, tracking the euro and global
shares higher on investors optimism policymakers around the
globe will do more to jolt economies back onto the path of
economic growth.
    Markets have for weeks expected central banks will take
action given the European debt crisis and weak economic data
globally.  
    Top U.S. Federal Reserve officials recently spelled out what
measures they might take to boost growth and hiring. Fed action
could come as soon as next week, as its policy-setting committee
meets Tuesday and Wednesday. 
    "All in all it's really the broader move that has CAD
appreciating. It's really just a reminder that the FOMC meeting
is coming up and there's the potential for the Fed to sound more
dovish or even take policy action," said Camilla Sutton, chief
currency strategist at Scotiabank.
    ECB Governing Council member Ewald Nowotny on Wednesday said
there were arguments for giving Europe's permanent rescue fund a
banking license, allowing it to borrow unlimited ECB money, an
idea that the central bank has rejected so far. 
    Investors have become increasingly worried that the force of
the new fund would be hugely diminished if, as widely expected,
Spain needs a full scale sovereign bailout on top of the rescue
deal for its banks.
    At around 2:45 p.m. EDT (1845 GMT), the Canadian dollar
 stood at C$1.0142 against the greenback, or 98.60 U.S.
cents, up from Tuesday's North American session close at
C$1.0204 versus its U.S. counterpart, or 98.00 U.S. cents.
Overnight, it hit C$1.0232, or 97.73 U.S. cents, its weakest
level since July 12.
    "That gave markets a bit of a boost pretty much across the
board and that enabled them to overlook the ... poor data
overnight," said Benjamin Reitzes, senior economist and foreign
exchange strategist at BMO Capital Markets.
    Weighing heavily on global sentiment earlier, data showed
Britain's economy shrank deeper into recession than expected in
the second quarter of 2012, battered by everything from an extra
day's holiday to budget austerity and the neighboring euro zone
crisis. 
    German business sentiment also dropped in July to its lowest
level in more than two years, adding to signs that Europe's
largest economy is losing momentum along with its immunity to
fallout from the region's deepening problems. 
    In the absence of any major surprises, Sutton said
anticipates the currency will trade in a tight range of
C$1.01-C$1.0190 against the greenback overnight.
    Canadian bond prices retreated across the curve with the
two-year bond down 7 Canadian cents to yield 0.962
and the benchmark 10-year bond off 10 Canadian cents
to yield 1.587 percent.
    Elsewhere, an auction of 10-year Canadian government bonds
on Wednesday produced an average yield of 1.705 percent, the
lowest average yield in at least 5 years.