CANADA FX-C$ holds near 2-1/2 month high on BoC comments

Wed Jul 20, 2011 1:20pm EDT
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* C$ at C$0.9483 to the U.S. dollar, or $1.0545

* Touches highest level since May 2

By Solarina Ho

TORONTO, July 20 (Reuters) - The Canadian dollar held near 2-1/2 month highs against the U.S. dollar on Wednesday after the Bank of Canada sounded more hawkish than expected at its policy meeting on Tuesday, prompting some investors to price in rate hikes sooner rather than later.

The currency added to its gains after the central bank released its Monetary Policy Report on Wednesday morning. It eased modestly following Governor Mark Carney's press conference, when the bank signaled it was in no rush to normalize rates. [ID:nN1E76J0N0]

"Yesterday, I think the market was a bit surprised by how hawkish the Bank of Canada sounded in their communique," said Charles St-Arnaud, Canadian economist and currency strategist with Nomura Securities International in New York.

"Today, the Monetary Policy Report only confirmed and gave a bit more detail on the outlook, on the quarterly forecast," St-Arnaud said. He added that any possible rate move later in the year would be "conditional on what risk is doing, what the tension in Europe's doing."

At 12:40 p.m. (1640 GMT), the currency CAD=D4 stood at C$0.9483 to the U.S. dollar, or $1.0545, up from Tuesday's North American close at C$0.9508 to the U.S. dollar, or $1.0517. Earlier, it rose as high as C$0.9457 to the U.S. dollar, or $1.0574, its best level since May 2.

"There was an upsize in terms of inflationary expectations by the bank in the short term, but really the market sentiment with respect to the Canadian dollar was changed in conjunction with yesterday's policy guidance," said Jack Spitz, managing director of foreign exchange at National Bank of Canada.   Continued...