CANADA FX DEBT-C$ hits strongest level since February in central bank rally

Tue May 7, 2013 5:07pm EDT
 
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* C$ at C$1.0044 vs US$, or 99.56 U.S. cents
    * Strongest close vs greenback since Feb. 14
    * Global stock markets hit highest levels in five years
    * C$ surges against Aussie as RBA cuts rates
    * Bond prices lower across the curve

    By Alastair Sharp
    TORONTO, May 7 (Reuters) - The Canadian dollar closed at its
strongest level versus its U.S. counterpart since mid-February
on Tuesday, rising with stock markets around the world in a risk
rally fueled by signals that top central banks will keep
supporting economic growth.
    The Canadian currency also gained sharply against its
commodity-backed cousin in Australia after that country's
central bank cut interest rates. 
    Mark Chandler, head of Canadian fixed income and currency
strategy at Royal Bank of Canada, said the Australian rate cut
and the Canadian dollar's subsequent rally against the Aussie 
showed investors are more willing to bet on growth in Canada's
biggest export market, the United States, than on a soft landing
in Australia's biggest commodity customer, China.
      "There is a bigger story developing this year," Chandler
said.
     "The nod went to Australia throughout much of the last few
years," he said, referring to the Australian currency
outperforming Canada's in that period, due in part to strong
Chinese demand for Australia's resources, compared with slower
U.S. consumption of Canadian commodities.
    MSCI's global index, which tracks stocks in 
45 countries, edged past its June 2008 highs in Asian trading on
Tuesday with Japan's Nikkei stock index jumping in a delayed
reaction to Friday's U.S. jobs data. The Tokyo market was closed
on Monday.
    The momentum continued in Europe, where the DAX hit
a record following strong industrial data. 
    The head of the European Central Bank underpinned the 
positive mood on Monday by saying the ECB was ready to trim
interest rates again if needed, while the Reserve Bank of
Australia cut rates to a new low of 2.75 percent on Tuesday and
suggested it may do more. 
    "The Canadian dollar is being held up by some of the
crosses, particularly the Aussie-CAD ... in the backwash of the
RBA move, and that has provided a reasonably healthy backdrop
for the Canadian dollar overall," said Jeremy Stretch, head of
foreign exchange strategy at CIBC World Markets in London.
    The Canadian dollar ended the day at C$1.0044 to
the U.S. dollar, or 99.56 U.S. cents, its strongest close since
Feb. 14 and up from Monday's North American close of C$1.0068 to
the U.S. dollar, or 99.32 U.S. cents.
    The Canadian dollar rallied to its strongest level since
October against Australia's currency after the RBA surprised
many traders with the rate cut. The Canadian dollar firmed as
far as C$1.0204 to the Australian currency. 
    Stretch said traders would be watching data on Canadian
housing starts, due to be released on Wednesday. The report is
expected to show the pace of new homebuilding slowed to a
seasonally adjusted annual rate of 175,000 units in April, down
from 184,000 units in March.
    Investors were also awaiting Friday's Canadian employment
data. The report is expected to show the economy added 15,000
jobs in April, while the unemployment rate held steady at 7.2
percent, according to a Reuters survey of analysts.
    RBC's Chandler said he expects a decent jobs report could
push the Canadian currency through the psychologically important
one-to-one level with the U.S. dollar.
    Traders are also looking for more clues on what newly
appointed Bank of Canada Governor Stephen Poloz will say about
monetary policy. 
    Prices for Canadian government bonds were lower across the
curve. The two-year bond fell half a Canadian cent to
yield 0.979 percent, while the benchmark 10-year bond
 fell 19 Canadian cents to yield 1.822 percent.