CANADA FX DEBT-C$ steady as BoC remarks offset weak global data

Thu Aug 9, 2012 9:14am EDT
 
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* C$ at C$0.9944 vs US$, or $1.0056
    * C$ boosted after BoC hints at rate increase
    * U.S. jobs data supports greenback
    * Canada trade, housing data limits C$ gains
    * Bond prices mostly lower

    By Jon Cook
    TORONTO, Aug 9 (Reuters) - The Canadian dollar was little
changed against its U.S. counterpart on Thursday, as
disappointing domestic data was offset by comments from Bank of
Canada Governor Mark Carney that signaled the central bank may
still raise interest rates.
    On Wednesday, Carney argued the case for raising rates in an
interview with the BBC in London, even though he said a global
slowdown was having an impact on Canada's
economy. 
    "We're in a very different place than the major crisis
economies," Carney said, according to a transcript of the
interview. "The extent to which we continue to grow above trend,
we may withdraw some of that monetary policy stimulus."
    The central bank chief has been swimming against the global
current since April with his message that borrowing costs will
soon have to rise in Canada.
    "That should maintain a broadly supportive theme for the
Canadian dollar," said Jeremy Stretch, head of foreign exchange
strategy for CIBC in London. "We're seeing the Canadian dollar
start to move back towards the bias of thinking about top-side
risks on rates."
    Overnight, the Canadian currency touched a fresh
three-month high after Carney's remarks, rising to C$0.9931
against the U.S. dollar, or $1.0069.
    But gains were tempered as the U.S. dollar rallied somewhat
after data on Thursday showed an unexpected drop in U.S. jobless
claims, suggesting a modest improvement in the labor market in
the United States. 
    Canada's trade deficit also unexpectedly soared to C$1.81
billion ($1.83 billion) in June as imports hit a record high
while exports barely edged up, Statistics Canada data showed on
Thursday. The data confirm that Canada, which relies heavily on
trade, is suffering as Europe's economic crisis shows no sign of
ending. 
    Canadian housing starts also slowed more sharply than
expected last month. The seasonally adjusted annualized rate was
208,500 units in July, compared with 222,100 units in June, data
from the Canada Mortgage and Housing Corp showed on Thursday.
 
    Around 8:50 a.m. EDT (1250 GMT), the Canadian dollar was at
C$0.9944 versus the U.S. currency, or $1.0056, little changed
from Wednesday's close at C$0.9946 against the greenback, or
$1.0054.
    Stretch said the currency would likely stay within a narrow
range, between C$0.9920 to C$0.9970.
    "The fact that we haven't seen the Canadian dollar getting
down towards C$0.99 is more of a function of the broader risk
dynamics supporting the U.S. side of the equation," said
Stretch.
    Other data on Thursday showed China's factory output slowed
to its weakest in more than three years in July. But a drop in
Chinese inflation raised the chances that China will act to
stimulate its economy, helping limit losses and boost European
shares.  
    Europe's stock markets began their latest rally two weeks
ago when European Central Bank President Mario Draghi said the
bank was "ready to do whatever it takes to preserve the euro",
raising hopes of bold steps to help lower the borrowing costs of
Spain and Italy.
    Canadian bond prices were mostly lower. The two-year bond
 fell 3 Canadian cents to yield 1.177 percent, and the
benchmark 10-year bond slid 6 Canadian cents to
yield 1.829 percent.