CANADA FX DEBT-C$ in "open water" after breaking 3-year high

Fri Apr 1, 2011 4:51pm EDT
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   * C$ firms to $1.0389, highest level since Nov 2007
 * No technical barriers seen between new levels, 2007 high
 * Ends at $1.0369, weekly gain of 1.8 pct
 * Bonds mostly lower as investors shed safe-haven assets
 * U.S. jobs jump boosts Canada rate hike expectations
 (Updates to close, adds comments)
 By Ka Yan Ng
 TORONTO, April 1 (Reuters) - Canada's dollar charted
three-year highs against the U.S. currency on Friday, lifted by
soaring oil prices and a robust U.S. jobs report that
underpinned hopes of a definitive economic recovery.
 The currency CAD=D4 touched its highest level since
November 2007, hitting C$0.9626 to the U.S. dollar, or $1.0389,
spurred by data that showed U.S. nonfarm payrolls notched a
second straight month of solid gains in March. [ID:nOAT004775]
 Some analysts said the report marked a decisive shift in
the U.S. labor market that should strengthen the economy of
Canada's largest trading partner. It was also seen boosting the
likelihood of Canadian interest rate hikes, which could attract
capital flows.
 "From a technical point of view, there aren't any real
notable levels between here and C$0.9060, so it's quite a lot
of open water here now," said Shaun Osborne, chief currency
strategist at TD Securities.
 The Canadian currency CAD=D4 finished at C$0.9644 to the
U.S. dollar, or $1.0369, up from Thursday's close of C$0.9696
to the U.S. dollar, or $1.0314.
 High-flying energy prices drove the Canadian dollar to a
modern-day high of C$0.9059, or US$1.1039, in November 2007,
according to Thomson Reuters dealing data. But a sell-off in
commodities following the global financial crisis sent the
currency plunging 18.6 percent the following year.
 Oil, a major Canadian export, provided solid support for
the commodity-linked Canadian dollar on Friday, though oil
trading was volatile. Fighting in Libya, an OPEC producer,
remained a rallying point for oil. [O/R]
 "The technicals still favor a higher Canada. I think it
will be a slow grind higher based on the strong oil prices and
prospects of global recovery, which will get more traction I
think ... because of the U.S. employment data," said Michael
O'Neill, managing director at Knightsbridge Foreign Exchange.
 Canadian bond prices were mostly lower as investors felt
more confident in shedding safe-haven assets for stocks and
other riskier bets. They underperformed U.S. Treasuries, which
rose after a top U.S. Federal Reserve official said he saw no
reason to alter course on monetary policy after the employment
data. [US/]
 Swap markets showed traders pricing in a higher likelihood
of Canadian interest rate hikes at every Bank of Canada
policy-announcement date from May 31 to Dec 6, with the odds of
a September rate hike fully priced in.
 Traders maintained bets that there is almost no chance the
central bank will raise rates in April. Odds of a May hike were
also seen as low. BOCWATCH
 BMO Capital Markets senior economist Michael Gregory said
the central bank might soon start dropping hints on raising
interest rates, given a closing output gap and as government
fiscal restraint may not be as substantial as previously
expected. He also pointed to the Canadian dollar, saying the
strength of the currency "might not be as big an obstacle to
rate hikes."
 Still, Gregory said Canadian rates hikes are still "not
imminent" and that he remains comfortable forecasting a July
rate hike, which will bring the key overnight rate to 2 percent
at year-end. The rate is now 1 percent.
 The two-year bond CA2YT=RR was unchanged to yield 1.832
percent, while the 10-year bond CA10YT=RR lost 15 Canadian
cents to yield 3.372 percent.
 (With additional reporting by Solarina Ho; editing by Peter