CANADA FX DEBT-C$ closes stronger as commodity prices rise

Tue Jul 12, 2011 5:11pm EDT
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 * 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.
 "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
 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
 "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
 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)