CANADA FX DEBT-C$ hits 3-month peak on BoC, stimulus hopes

Thu Aug 9, 2012 2:20pm EDT
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* C$ hits high of C$0.9913 vs US$, or $1.0088
    * Supported by expectation BoC will raise rates
    * Currency hits record against euro
    * Weak China data keeps stimulus hopes alive
    * Bond prices mostly lower

    By Jennifer Kwan
    TORONTO, Aug 9 (Reuters) - Canada's dollar climbed to a
fresh three-month peak against its U.S. counterpart on Thursday,
buoyed in part by comments from the Bank of Canada, and as
broader markets rose on hopes some central banks will act to
stimulate their economies.
    The Canadian currency touched C$0.9913 against the
U.S. dollar, or $1.0088, its strongest since May 4 after Bank of
Canada Governor Mark Carney on Wednesday 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. 
    Against the euro, the Canadian dollar rose to C$1.2165, or
82.20 euro cents, and hit multi-month highs against sterling and
the yen. 
    "It's mainly reminding the market that the Bank of Canada is
not ready to cut and that the next move they have in mind is a
hike," said Charles St-Arnaud, economist and currency strategist
at Nomura Securities in New York.
    But St-Arnaud said that was just a part of the bigger
picture. The currency has gotten a boost as foreigners favor
Canadian assets as a safe-haven given the turbulent global
    At around 1:10 p.m. EDT (1710 GMT), the Canadian dollar was
at C$0.9922 versus the U.S. currency, or $1.0080, higher than
Wednesday's close at C$0.9946 against the greenback, or $1.0054.
    U.S. stocks stayed near four-year highs and European shares
nudged closer to their peak of the year on Thursday. 
    A key catalyst for the move higher in global stocks appeared
to be data from China that showed annual consumer inflation hit
a 30-month low last month and industrial output grew at it
slowest pace in some three years, keeping alive hopes that
policymakers would take more action to keep China's growth on
    Stock markets around the world rose on Friday after U.S.
jobs data eased concerns about global growth but 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.
    ECB governing council member Christian Noyer said on
Thursday the central bank is determined to bring down those
borrowing costs and should be ready to intervene decisively in
bond markets very soon.
    "The general theme seems to be in place for the market
expecting central bank action out of the ECB and the Fed," said
John Curran, senior vice president at CanadianForex.
    The broader market influences overcame domestic data.   
Canada's trade deficit unexpectedly soared to C$1.81 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.
    Jeremy Stretch, head of foreign exchange strategy for CIBC
in London, 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
    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 fell 3 Canadian cents to
yield 1.820 percent.