CANADA FX DEBT-C$ firms as oil climbs, Bank of Canada reassures

Tue Aug 27, 2013 4:37pm EDT
 
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article
[-] Text [+]

* C$ strengthens as oil, gold rise on Syria fears
    * Bank of Canada's Murray bolsters confidence
    * C$ at C$1.0474 vs US$, or 95.47 U.S. cents
    * Bond prices rise


    By Andrea Hopkins
    TORONTO, Aug 27 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Tuesday as oil climbed to a
six-month high and gold gained ground as a safe haven investment
amid the possibility of Western military action against the
Syrian government.
    While a flight to safety does not typically benefit the
Canadian currency, stronger oil prices and reassuring comments
from a Bank of Canada official pushed the Canadian dollar up 0.2
percent, erasing nearly a week of decline. Canada is a major 
producer of both oil and gold. 
    Both Brent and U.S. crude gained more than $3 a barrel as
fears mounted that Western intervention could further
destabilize the Middle East, which pumps a third of the world's
oil. 
    Wall Street stocks fell, with the Dow Jones industrial
Average and the S&P 500 both off more than 1
percent, and Nasdaq down more than 2 percent. Investor
nervousness was reflected in a jump of more than 15 percent on
the CBOE volatility index, Wall Street's so-called fear
gauge, in the last two days. 
   A number of nations and groups, including Britain, France,
Canada and the Arab League, joined the United States in urging a
firm response to Bashar al-Assad's government in Syria and said
the world shouldn't stand by as chemical weapons are used.
However Russia, as Syria's key ally and arms supplier, opposes
military action. 
    While the Canadian currency is awaiting direction from
economic growth data due out on Friday, Scotiabank Chief
Currency Strategist Camilla Sutton said a speech by Bank of
Canada Deputy Governor John Murray may have reassured investors
that the end of quantitative easing by the U.S. Federal Reserve
will have a positive impact for Canada. 
    "What he highlights is that when the Fed began to ease it
was a net positive for Canada and that the exact reverse happens
when they begin to exit. However it will be in the context of an
improving U.S. economy, which helps to offset it," Sutton said.
    "(CAD strength) is a host of different things, but it looks
like as Bank of Canada Deputy Governor Murray was speaking we
continued to strengthen."
    The Canadian dollar ended the North American
session at C$1.0474 to the U.S. dollar, or 95.47 U.S. cents, up
from Monday's finish of C$1.0503, or 95.21 U.S. cents. 
    Whenever the Fed begins winding down its unconventional
monetary policy, Murray said, it will take place in the context
of a strengthening U.S. economy, and the benefits for the
Canadian economy will outweigh any risks. 
   "The improving underlying strength of the U.S. economy should
more than compensate for the drag from higher interest rates,"
Murray said in a speech. "Stronger external demand, coupled with
downward pressure on our currency and support for commodity
prices from a global economic recovery, will provide the lift." 
  
   The Fed has said it plans to start reducing its massive bond
purchase program by yearend, with an eye toward drawing it to a
close by mid-2014. The Fed's $85 billion a month in purchases of
U.S. Treasuries and mortgage-backed securities has been aimed at
driving down long-term interest rates and has been credited with
an infusion of liquidity that has benefited global financial
markets. 
    Canadian government bond prices were higher across the
curve, with the two-year bond rising 4.1 Canadian
cents to yield 1.165 and the benchmark 10-year bond 
climbing 66 Canadian cents to 2.569 percent.