June 2, 2010 / 3:18 PM / 7 years ago

CANADA FX DEBT-C$ heads higher as rate hikes reconsidered

3 Min Read

* C$ rises to 95.77 U.S. cents

* Bond prices softer across curve (Updates to midmorning)

By Ka Yan Ng

TORONTO, June 2 (Reuters) - The Canadian dollar gained ground against the U.S. currency on Wednesday as investors shifted to riskier assets such as equities, and as market players maintained expectations the Bank of Canada would continue its rate-hike path.

The currency gained marginally after the overnight session as mixed signals on equity and commodity markets gave little impetus to push either way.

There was also a slight overhang from the Bank of Canada, which raised interest rates on Tuesday, as expected, but gave no clear indication whether it would continue to do so. [ID:nN01103957] [ID:nN01264788] [ID:nN01123836]

But there was some reconsideration on Wednesday as market players still expect interest rates to rise this year.

Most of Canada's primary securities dealers, surveyed on Tuesday, maintained their interest rate forecasts for the rest of the year, even though the Bank of Canada warned against betting that it would embark on an uninterrupted campaign of rate increases. [ID:nN01126499]

"Canada's fundamentals are still very strong. They will be raising rates eventually and the world doesn't seem to mind if it's a little bit down the road, they'll still invest in the Canadian dollar," said John Curran, senior vice-president at CanadianForex, a commercial foreign exchange firm.

"Comparatively speaking, people are still finding value at these levels. If you look at Canada, compared to everything else out there it still looks gold."

Canada's commodity-linked dollar also gained as North American equities found firm footing and the price of oil, often a cue for the currency, rose.

At 10:55 a.m. (1455 GMT), the Canadian dollar CAD=D4 was at C$1.0442 to the U.S. dollar, or 95.77 U.S. cents, up from C$1.0540 to the U.S. dollar, or 94.88 U.S. cents, at Tuesday's close.

With limited data on tap, the market's next major focus will be Friday's U.S. and Canadian employment data, said Camilla Sutton, currency strategist at Scotia Capital.

In Canada, the median forecast is for a net gain of 12,500 jobs in May after a record gain of 108,700 in April. The median forecast for the unemployment rate is 8.1 percent. [ID:nECICA] [ID:nN01257964]

Bonds Lower

Canadian bond prices were lower across the curve as investor sentiment shifted to riskier assets such as stocks. The two-year Canadian government bond CA2YT=RR sagged 13 Canadian cents to yield 1.775 percent, while the 10-year bond CA10YT=RR fell 89 Canadian cents to yield 3.392 percent. (Additional reporting by Jennifer Kwan; editing by Rob Wilson)

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