CANADA FX DEBT-C$ pulls back from near parity with US$ after ECB

Thu Aug 2, 2012 2:05pm EDT
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* C$ at C$1.0074 vs US$, or 99.27 U.S. cents
    * Currency soars to 99.98 U.S. cents
    * Then hits session low of C$1.0080 on ECB disappointment
    * Bonds higher across curve

    By Jennifer Kwan
    TORONTO, Aug 2 (Reuters) - The Canadian dollar sank after
soaring to near parity with the U.S. dollar on Thursday after
European Central Bank President Mario Draghi disappointed the
market by not unveiling immediate  measures to combat the euro
zone debt crisis.
    Draghi heightened speculation of further bank purchases of
Italian and Spanish bonds when he said last week that he would
do "whatever it takes to preserve the euro."
    However, Draghi stopped short of providing quick action.
Instead, he said the ECB will draw up a mechanism in the coming
weeks to make outright purchases to stabilize stressed euro zone
borrowing costs. 
    "Expectations got a little inflated. Draghi deflated those
expectations," said John Clinkard, chief economist at Deutsche
Bank Canada.
    Global stock markets and the euro tumbled and the Canadian
dollar touched C$1.0080 versus the greenback, or 99.21 U.S.
cents, its weakest in nearly a week.
    "It seems the ECB was caught off guard by the aggressive
rhetoric from Draghi last week," said Dean Popplewell, chief
currency strategist at OANDA.
    "Draghi came out of the gate swinging. Once the market
realized there was no firm action and that this is still a work
in progress ... risk-off was again applied rather quickly."
    At 1:40 p.m. (1740 GMT), the Canadian dollar was at
C$1.0074, or 99.27 U.S. cents, pulling back from a session high
C$1.0002, or 99.98 U.S. cents as Draghi began a press
    Avery Shenfeld, chief economist at CIBC World Markets, said
he expects that by September the ECB will be in a better
position to announce the details.
    The disappointment follows Wednesday's statement by the
Federal Reserve, in which the U.S. central bank said the economy
was weaker but left policy on hold.
    The Fed stopped short of offering new monetary stimulus even
as it signaled further bond buys could be in store, sending
riskier assets like stocks and some metals prices like copper
    Elsewhere on Thursday, data also showed the number of
Americans filing new claims for jobless benefits rose less than
expected last week. 
    The uncertain global economic outlook prompted TD Economics
to lower its forecasts for Canadian government bond yields on
    TD now sees the 10-year yield falling to 1.55 percent in the
third-quarter after hitting a record low of 1.565 percent last
month. The bank also sees the 30-year yield, which hit 2.194
percent last month, reaching a record low 2.15 percent this
    Canadian bond prices were higher across the curve with the
two-year bond up 6 Canadian cents to yield 1.060
percent, and the benchmark 10-year bond 38 Canadian
cents to yield 1.671 percent.