June 30, 2011 / 9:20 PM / in 6 years

CANADA FX DEBT-Greece, data drive C$ to stronger finish

* C$ firms to C$0.9645 to the U.S. dollar, or $1.0368

* Hits strongest point since May 13

* Relief over Greek debt improves risk appetite

* Better-than-expected Canadian data supports

* Bond prices lower across curve

By Trish Nixon

TORONTO, June 30 (Reuters) - Canada’s dollar strengthened to a near seven-week high against the greenback on Thursday, boosted by a surge in commodity prices, easing of Greece’s debt woes and slightly better-than-expected domestic economic data.

The currency rose for a fourth day as world stocks and the euro rallied after Greece approved the final austerity measures needed to secure international funding and avert imminent bankruptcy. The news also boosted commodity prices. [MKTS/GLOB]

“The external factors are the key here,” said Paul Ferley, assistant chief economist at Royal Bank of Canada, pointing to stronger commodity prices and developments in Europe.

“Those (euro zone debt) pressures seem to be easing, and with that, the U.S. dollar is weakening after the flight-to-safety we saw earlier on.”

Canada’s dollar was also supported by positive domestic news, as economic data this week beat low expectations.

Gross domestic product (GDP) was unchanged in April following 0.3 percent growth in March, Statistics Canada said on Thursday. This was slightly better than the average forecast of a 0.1 percent decline. [ID:nN1E75T0ER]

On Wednesday, data showed that inflation in Canada reached its highest since May 2003, raising the prospect the central bank could lift interest rates sooner than had been expected. [ID:nN1E75S02V]

“We had much stronger-than-expected inflation data and now stronger-than-expected GDP data, so both will factor into expectations for the Bank of Canada, pulling forward the expectations of the market,” said Camilla Sutton, chief currency strategist at Scotia Capital.

Overnight index swaps, which trade based on expectations for the key central bank rate, showed that traders on Thursday priced in a slightly higher probability of rate hikes later this year following the GDP data, though a full 25-basis-point rate hike was not priced in until 2012. BOCWATCH

Higher interest rates tend to help a country’s currency appreciate because they often attract international capital flows.

The Canadian dollar ended the day at C$0.9645 to the U.S. dollar, or $1.0368, up from C$0.9706 to the greenback, or $1.0303. Earlier it hit a session high of C$0.9625, or $1.0390, its strongest since May 13.

Using Bank of Canada closing rates, the currency ended the quarter up about 0.5 percent against the U.S. currency and has gained about 3.1 percent year-to-date.

Looking ahead, Ferley said the strength of the currency would hinge on the sovereign debt struggles of Greece and the euro zone, with the market looking for authorities to contain the situation.

Longer term, he said the Canadian dollar will be buffeted by North American economic data.

“A lot of the weakness we’ve been seeing in Canada and the U.S. should ease and we should see stronger growth in the second half of the year.”

“With that we may see a little bit more support for commodity prices, and some support for the Canadian dollar.”

U.S. data on Thursday showed an unexpected jump in business activity in the U.S. Midwest that helped quell fears about an economic slowdown. [ID:nN9E7HG00J]

Canadian bond prices were lower across the curve as investors sought riskier assets.

The two-year bond CA2YT=RR fell 7 Canadian cents to yield 1.6 percent, while the 10-year bond CA10YT=RR fell 33 Canadian cents to yield 3.13 percent. (With additional reporting by Solarina Ho; Editing by Jeffrey Hodgson)

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