CANADA FX DEBT-C$ hits 2-1/2 year high ahead of BoC

Tue Jan 18, 2011 7:53am EST
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 * C$ hits fresh 2-1/2 year high of $1.0166
 * Bonds flat ahead of BoC announcement
 By Claire Sibonney
 TORONTO, Jan 18 (Reuters) - The Canadian dollar climbed to
a two-and-a-half year high against the U.S. dollar as traders
positioned themselves in anticipation of a hawkish statement by
the Bank of Canada in its policy decision on Tuesday.
 The central bank is scheduled to announce its interest rate
decision at 9 a.m. (1400 GMT), where it is widely expected to
hold its overnight target rate at 1 percent. [ID:nN25118365]
 Some analysts said the bank may use more bullish language
to prepare the market for the resumption of interest rate hikes
later this year. Higher rates tend to strengthen a currency by
attracting capital flows.
 "Markets are showing some signs of moderate liquidity from
overnight. There is small buying of CAD with anticipation that
there's going to be some hawkish comments coming from the bank
but still no bets on any sort of a hike today," said C.J.
Gavsie, managing director of foreign exchange sales at BMO
Capital Markets.
 Overnight, the currency CAD=D4 hit a session high of
C$0.9837 to the greenback,  or $1.0166, its best level since
since May 2008, with firmer oil prices and sovereign demand
also seen providing a lift.
 "Everybody is looking for some form of guidance within the
commentary and all bets so far seem to be that there's signs of
bullishness when it comes to rates in Canada in the near future
... the next three meetings definitely seem to be on close
watch," Gavsie added.
 At 7:40 a.m. (1240 GMT), the currency stood at C$0.9851 to
its U.S. counterpart, or $1.0151, up from Monday's North
American finish at C$0.9872, or $1.0130.
 Gavsie said the Canadian dollar could potentially challenge
C$0.9800 following the bank's announcement. However if the
market does not get what it's looking for in the commentary,
that could weaken the Canadian dollar to a support level around
C$0.9915, still above parity against the greenback.
 Near term, Gavsie said there is strong belief in the
foreign exchange community that the Canadian dollar could still
run up another cent or two, despite global uncertainties.
 Ahead of the Bank of Canada's decision bonds were little
changed, including the interest rate-sensitive two-year bond
CA2YT=RR, down half a Canadian cent to yield 1.793 percent.
The 10-year bond CA10YT=RR was flat, yielding 3.256 percent.
 (Additional reporting by London forex team, Editing by
Chizu Nomiyama)