CANADA FX DEBT-C$ rises to 2-week high, then pares gain

Tue Jun 14, 2011 4:58pm EDT
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   * C$ ends at C$0.9689 to the U.S. dollar, or $1.0321
 * Bonds weaker as investors return to riskier assets
 * TD says BoC to delay rate hikes to 2012
 (Updates to close)
 By Ka Yan Ng
 TORONTO, June 14 (Reuters) - The Canadian dollar gained
nearly a penny against the U.S. dollar on Tuesday, buoyed by
positive North American and Chinese data that soothed fears
about the direction of the global economy.
 U.S. retail sales fell less than expected in May, and
excluding autos, they rose modestly. Producer prices rose more
than expected. [ID:nCAT005457] [ID:nN14189699]
 Meanwhile, inflation in China accelerated in May, prompting
Beijing to hike its reserve ratio for the ninth time since
October, but it did not raise interest rates as some had
 A flurry of Chinese economic data, including inflation and
industrial output, suggested economic growth was slowing down,
but not too quickly, relieving concerns that the world's
second-biggest economy was heading for a hard landing.
 Also, Canadian industrial capacity use rose in the first
quarter as manufacturers showed renewed strength after a year
of slowing growth. [ID:nN14284333]
 The data helped general risk sentiment rise but the
Canadian dollar stayed stuck in the broad C$0.9650-C$0.9850
range it has been in since early May.
 "I can't see us breaking out too much but a few guys are
starting to look for a possible risk rally," said John Curran,
senior vice president at CanadianForex. He said he was
skeptical about such a rally, citing ongoing European woes, and
tepid U.S. and Canadian data.
 Still, a break below C$0.9650 "may start to turn people's
heads," he said.
 At one point, the Canadian dollar CAD=D4 climbed almost a
penny from the previous session's close, reaching as high as
C$0.9675, its firmest level since June 1.
 It pared gains by session's end, finishing at C$0.9689 to
the U.S. dollar, or $1.0321, stronger than Monday's North
American finish oft C$0.9768 to the U.S. dollar, or $1.0238.
 On Tuesday, Toronto-Dominion Bank TD.TO became the first
primary dealer to push its forecast for the next Bank of Canada
rate interest hike into 2012, warning the economy has not fully
emerged from the shadow of the financial crisis.
 TD, Canada's second-biggest lender, said it expects that
the Bank of Canada will next raise its key policy rate by a
quarter-point in January to 1.25 percent.
 Alongside this forecast, TD said it expects the Canadian
dollar will remain fairly well supported and stay within a few
cents of parity with the greenback.
 "Without the bank hiking we don't see that additional
impetus to push higher at this stage," said David Tulk, chief
Canada macro strategist at TD Securities.
 Canadian bond prices were weaker across the curve as the
positive economic sentiment sent investors back into riskier
assets. [US/]
 The two-year bond CA2YT=RR fell 9 Canadian cents to yield
1.512 percent, while the 10-year bond CA10YT=RR lost 68
Canadian cents to yield 3.083 percent.
 Market players will next focus on the major Canadian data
of the week, manufacturing shipments data for April, due
Wednesday. It is expected to be weak due to supply chain
disruptions resulting from the Japan earthquake.
 Bank of Canada Governor Mark Carney is speaking in
Vancouver on Wednesday afternoon about the country's housing
 (Reporting by Ka Yan Ng; editing by Peter Galloway)