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

Wed Jul 25, 2012 4:32pm EDT
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* C$ ends at C$1.0152 vs US$, or 98.50 U.S. cents
    * Euro, stocks higher on stimulus, ECB 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 investor optimism that policymakers around the
world will do more to jolt economies back on to the path of
    Markets have for weeks expected central banks will take
action given the European debt crisis and weak economic data
    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 is the potential for the Fed to sound
more dovish or even take policy action," said Camilla Sutton,
chief currency strategist at Scotiabank.
    Also on Wednesday, ECB Governing Council member Ewald
Nowotny 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.
    "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.
    The Canadian dollar ended at C$1.0152 against the
greenback, or 98.50 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.
    Weighing on sentiment earlier in the global session, data
showed Britain's economy shrank deeper into recession than
expected in the second quarter of 2012, battered by everything
from budget austerity to 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 anticipates
the Canadian 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 0.965
percent and the benchmark 10-year bond off 8
Canadian cents to yield 1.585 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.