CANADA FX DEBT-C$ closes stronger as commodity prices rise
* C$ ends stronger at C$0.9662 to US$, or $1.0350
* Touched a session high of C$0.9627
* Hits strongest level against euro since March 11
By Trish Nixon
TORONTO, July 12 (Reuters) - Canada's currency strengthened against the U.S. dollar on Tuesday, supported by higher commodity prices and speculation that the European Central Bank was acting more forcefully to stem the debt crisis.
Traders cited talk that the European Central Bank was buying bonds of debt-plagued euro zone nations for the first time in three months. [ID:nL6E7IC260]
"Market sentiment throughout the day seemed to be turning," said Benjamin Reitzes, economist at BMO Capital Markets.
He said factors for the rebound include "a little hope that Europe will be able to sort itself out."
Also supporting the currency were higher commodity prices. Oil, ended a two day losing streak as a weaker U.S. dollar and supportive technicals drove prices higher. [O/R]
Canada is a major exporter of natural resources, and their price movements tend to impact the direction of the currency.
The currency surged to a session high of C$0.9627, or $1.0387, following the release of the U.S. Federal Open Market Committee's June 21-22 minutes.
The minutes indicated that some officials were ready to provide more easing monetary policy easing if the recovery was too sluggish to cut the nation's unemployment rate. [MKTS/GLOB]
"It looks like the minutes prompted some positive reaction by equity markets ... and that's contributing to some extent to the positive Canadian dollar," said Reitzes.
The Canadian dollar ended the session CAD=D4 at C$0.9662 to the U.S. dollar, or $1.0350, up from Monday's North American finish of C$0.9690, or $1.0320.
Early in the session it fell to a low of C$0.9780, its weakest point since June 29, on fears that euro zone leaders were failing to take action to prevent the spread of the debt crisis.
But it did rally against the beaten-down euro, touching its highest point since March 11, with one Canadian dollar buying 74.15 euro cents.
Reitzes said the direction of the currency in the near-term would depend on the outcome of the European situation, as well as the risk associated with the U.S. raising their debt ceiling.
"There's plenty of risks out there. If things don't turn out too negative we should see the dollar continue to strengthen over the next couple of months as we think we get closer to Bank of Canada rate hikes, which we expect to start in October."
Higher interest rates often attract foreign capital, and tend to drive currencies higher.
Canadian bond prices were mostly lower on Tuesday, as investors turned more optimistic and dipped back into riskier assets.
The two-year bond CA2YT=RR was off 6 Canadian cents to yield 1.453 percent, while the 10-year bond CA10YT=RR was up 5 Canadian cents, yielding 2.904 percent.
Canadian bonds mostly underperformed U.S. Treasuries, with the Canadian 10-year yield 1.8 basis points above its U.S. counterpart, compared with 4.4 basis points lower yesterday. (Editing by Jeffrey Hodgson)
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