CANADA FX DEBT-C$ hits 3-month high vs US$, record against euro

Thu Aug 16, 2012 4:59pm EDT
 
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* C$ ends at C$0.9867 vs US$, or $1.0135
    * Bond prices mixed across the curve

    By Claire Sibonney
    TORONTO, Aug 16 (Reuters) - The Canadian dollar rose to its
strongest level in more than three months against its U.S.
counterpart and a record peak versus the euro on Thursday after
German Chancellor Angela Merkel voiced support for the European
Central Bank's crisis-fighting strategy.
    The comments by Merkel, made on a visit to the Canadian
capital Ottawa, spurred a rally in riskier assets. Merkel said a
declaration by European Central Bank chief Mario Draghi last
month to do whatever was necessary to save the euro was
"completely in line" with the approach taken by European
leaders. 
    Merkel's remarks raised the prospect the ECB might soon buy
the sovereign debt of Spain, Italy and other debt-laden euro
zone members whose high borrowing costs could become crippling.
    Lackluster U.S. data on Thursday, including soft weekly data
on the labor market and a regional factory gauge, also left the
door open to more monetary stimulus from the U.S. Federal
Reserve. 
    "It's generally a buy North America or sell North America
story in terms of the big swings in the FX markets," said Shaun
Osborne, chief currency strategist at TD Securities.
    Osborne said the Canadian currency, in particular, was
boosted on higher interest rate expectations for the country and
its superior fiscal position, reflected by a Moody's report on
Thursday that reaffirmed Canada's AAA ratings. 
    The Canadian dollar ended the North American session at
C$0.9867 against its U.S. counterpart, or $1.0135, firmer than
Wednesday's North American session close at C$0.9890, or
$1.0111. The Canadian dollar hit its highest intraday level
against the greenback since May 3.
    Osborne said in the short term, Canada's currency could
strengthen to the C$0.9800 area.
    The Canadian dollar was still seen outperforming most major
currencies on the crosses. It hit a record high against the euro
at C$1.2121, or 82.50 U.S. cents.
    Against the Australian dollar, Canada's currency
reached its strongest level in one month. 
    Looking ahead to Friday, investors will focus on domestic
inflation figures for July.
    Canadian inflation is forecast to have remained tame in the
month, with the annual core rate coming in right on the Bank of
Canada's 2 percent target, and likely having little influence on
the bank's early September interest rate decision.
 
    Canadian bond prices were mixed across the curve, but still
outperformed U.S. Treasuries. The two-year bond edged
up half a Canadian cent to yield 1.244 percent, and the
benchmark 10-year bond fell 10 Canadian cents to
yield 1.965 percent.