CANADA FX DEBT-C$ hits 3-week high on rate expectations

Thu Sep 9, 2010 8:18am EDT
 
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 * C$ rises as high as 96.89 U.S. cents
 * Bond prices drift lower
 By Claire Sibonney
 TORONTO, Sept 9 (Reuters) - The Canadian dollar extended
gains against its U.S. counterpart on Thursday to its strongest
level in three weeks a day after the Bank of Canada raised
interest rates for a third straight time and sounded
surprisingly hawkish in its outlook.
 The central bank nudged its overnight rate target up 25
basis points to 1 percent and, contrary to most economists'
expectations, did not signal a pause at its next scheduled
decision in October. It said rates remained "exceptionally
stimulative" but kept all options open due to doubts about the
U.S. and global recoveries. [ID:nN08241537]
 "This is follow through on what's perceived to be the Bank
of Canada leaving the door slightly ajar to more hikes," said
Firas Askari, head of foreign exchange trading at BMO Capital
Markets.
 Also boosting the bid for riskier assets, oil rose above
$75 a barrel while on global stock markets European and Asian
shares edged up and Wall Street was poised for a stronger
start. [O/R] [.N]
 At 7:58 a.m. (1158 GMT), the Canadian dollar CAD=D4 stood
at C$1.0333 to the U.S. dollar, or 96.78 U.S. cents, up from
Wednesday's finish at C$1.0374 to the U.S. dollar, or 96.40
U.S. cents.
 Earlier, the currency hit C$1.0321 to the U.S. dollar, or
96.89 U.S. cents, its firmest level since Aug. 19.
 Askari noted, however, that "a significant size" of hedging
by corporate Canada to buy U.S. dollars for capital equipment
from the United States may add pressure to the currency.
 But he still sees further strength for the Canadian dollar
versus the greenback with the next key areas of support at
C$1.0325 and C$1.0250.
 "I think the stars are aligning themselves up for another
run-up for the Canadian dollar," said Askari.
 "I think as long as you don't have an equity meltdown,
which doesn't seem like it's happening any time soon on a
global scale, I think the Canadian dollar should continue to
grind higher.
 A slew of data was also expected including domestic housing
starts and house price index, as well as U.S. jobless claims
and trade balance figures from both sides of the border.
 Canadian bond prices extended losses, tracking U.S.
Treasuries down. [US/]
 The two-year Canada bond CA2YT=RR dropped 7 Canadian
cents to yield 1.449 percent, while the 10-year bond
CA10YT=RR shed 31 Canadian cents to yield 2.957 percent.
 (Reporting by Claire Sibonney, Editing by Chizu Nomiyama)