CANADA FX DEBT-C$ hits 3-month high on central bank hopes

Wed Aug 8, 2012 4:50pm EDT
 
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* C$ ends at C$0.9946 versus the US$, or $1.0054
    * Touches C$0.9937, highest since May 8
    * Currency supported by some hope central banks will act
    * Bond prices edge higher across the curve

    By Jennifer Kwan
    TORONTO, Aug 8 (Reuters) - The Canadian dollar touched a
three-month peak against its U.S. counterpart on Wednesday,
supported by recovering commodity prices and some belief central
banks around the world will step in to prop up their economies.
    "The commodities have recovered. You've got gold comfortably
trading above $1,600 again, crude has had quite a nice recovery
from the lows we saw a few weeks ago," said David Bradley,
director of foreign exchange trading at Scotiabank.
    The Canadian dollar surged to C$0.9937, or $1.0063, also
aided by broader risk appetite on belief central banks will act
to jolt their economies.
    Risky assets began rising on Friday after U.S. jobs data
eased concerns about global growth, but at the same time
supported hopes of further policy easing by the Federal Reserve.
    Last week's signal by European Central Bank President Mario
Draghi that it may ease borrowing costs for Spain and Italy
provided further optimism. 
    "The belief is that many of the central banks will take
action to address either the financial crisis and, or weak
economies," said Marc Chandler, global head of currency strategy
at Brown Brothers Harriman.
    "I don't just mean the Federal Reserve, I mean the ECB
(European Central Bank) and I also mean China and I also mean,
possibly, the UK."
    Still, the Bank of England on Wednesday gave no hint of
future action in the UK despite slashing its growth forecast,
tempering some of the recent optimism about central bank
stimulus. 
    Canada's dollar ended at C$0.9946 versus the U.S.
currency, or $1.0054, slightly higher f rom Tuesday's close at  
C$0.9975 against the greenback, or $1.0025.
    The Canadian currency is supported by ongoing expectation
the Bank of Canada will eventually hike interest rates.
    "The prospect of Canada raising interest rates at some point
in the future before any of the other G10 countries is helping
keep the bid tone to the Canadian dollar," said Scotiabank's
Bradley.
    Most Canadian primary dealers expect the Bank of Canada to
hold interest rates steady until mid-2013 or later. 
    A three-day rally on world equity markets took a breather on
Wednesday, with global stocks barely in the black and the euro
lower on soft data that showed industrial output in Germany, the
euro zone's biggest economy, fell more than expected in June.
    Separate data showed German imports fell in June for the
second time in three months, and exports also dropped.
 
    Bradley said Canadian dollar resistance is seen holding at 
C$0.9900 against the U.S. currency, or $1.01. On the flip side,
the range is at C$1.0050-80.
    Canadian bond prices were higher across the board. The
two-year bond was up 1 Canadian cent to yield 1.166
percent, and the benchmark 10-year bond edged up 14
Canadian cents to yield 1.825 percent.