CANADA FX DEBT-C$ holds near 11-wk high on ECB, Fed hopes

Mon Jul 30, 2012 8:21am EDT
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* C$ at C$1.0034 vs US$, or 99.66 U.S. cents
    * Bond prices creep higher across the curve

    By Claire Sibonney
    TORONTO, July 30 (Reuters) - The Canadian dollar hovered
near an 11-week high against the U.S. dollar on Monday as
expectations rose that the European Central Bank and the U.S.
Federal Reserve will provide stimulus to support their
struggling economies.
    Positive sentiment from last week spilled over into Monday's
trade after the leaders of France and Germany said they are
"determined to do everything to protect the euro zone" and its
single currency. That echoed ECB President Mario Draghi's pledge
on Thursday to do whatever is necessary to protect the euro zone
from collapse.
    The rhetoric raised expectations that the ECB could take
bold measures to lower soaring Italian and Spanish borrowing
costs and supported riskier assets. Italy's benchmark 10-year
borrowing costs eased below 6 percent and the country managed to
sell bonds at the top of its planned issue range of up to 5.5
billion euros on Monday. 
    However, some investors doubt that ECB policymakers will
deliver in line with market expectations when they meet on
Thursday, with September shaping up to be a "make-or-break"
month in the search for a resolution to the three-year-old debt
    "I think we go into the ECB meeting with the market having
quite elevated expectations that the ECB may do something," said
Adam Cole, global head of FX strategy at RBC Capital Markets in
    "On balance, I think if anything, there's probably scope for
disappointment as the ECB rarely puts together policy in a hasty
fashion at the best of times, and now, in particular there seems
to be little incentive for them to do that."
    At 8:05 a.m. (1205 GMT), the Canadian dollar stood
at C$1.0034 versus the greenback, or 99.66 U.S. cents, slightly
firmer than Friday's North American session close at C$1.0044,
or 99.56 U.S. cents.
    Investors will keep an eye on any developments from U.S.
Treasury Secretary Timothy Geithner's meeting with German
Finance Minister Wolfgang Schaeuble and Draghi on Monday. The
U.S. Treasury said they will discuss the U.S., European and
global economies. 
    The U.S. Federal Reserve also holds a policy meeting on
Tuesday and Wednesday. Speculation is growing that the Fed will
do more to bolster recovery, after data showed U.S.
second-quarter gross domestic product expanded at a 1.5 percent
annual rate, the weakest pace of growth since the third quarter
of 2011.
    U.S. non-farm payrolls data on Friday is expected to provide
markets with further direction.
    "Until we get to some of these big event risks on Wednesday,
Thursday, Friday, the momentum still seems to be downward for
dollar/Canada," added Cole.
    "(I) wouldn't be surprised if we did continue to tick down
... possibly through parity in the early part of the week."
    He cautioned, however, that any disappointing policy
announcements from the two major central banks or a soft U.S.
jobs number would threaten the Canadian dollar's recent rally.
    Canadian bond prices edged slightly higher across the curve
with the two-year bond up 1 Canadian cent to yield
1.107 percent, and the benchmark 10-year bond up 3
Canadian cents to yield 1.744 percent.