CANADA FX DEBT-C$ hits one-month high as Europe optimism grows

Mon Oct 24, 2011 1:57pm EDT
 
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 * C$ at C$1.0038 vs US$, or 99.59 U.S. cents
 * Touches one-month high
 * Europe optimism, China PMI spur risk appetite
 * Bond prices mixed
 (Updates with one-month high, adds comment)
 By Andrea Hopkins
 TORONTO, Oct 24 (Reuters) - The Canadian dollar hit a
one-month high against its U.S. counterpart on Monday as
investors bet on a positive outcome to talks on the euro zone
debt crisis and as data from China came in strongly.
 The safe-haven U.S. dollar weakened against a basket of
major currencies and world stocks rose after a weekend meeting
of policymakers in Brussels, where agreements were said to be
near on bank recapitalization and on how to leverage the
European Union's EFSF rescue fund to try to stop bond market
contagion. [MKTS/GLOB]
 "It's just good tidings coming out of Europe. We're
carrying over the sentiment from late last week where
policymakers were actually able to give us a pretty good clear
indication of what to expect when," said David Tulk, chief
Canada macro strategist at TD Securities.
 Increased appetite for risk assets was bolstered by a sharp
rise in China's flash purchasing managers' index, suggesting
that manufacturing in the world's second-largest economy
expanded moderately in October after three months of
contraction. [ID:nL3E7LL1AE]
 The figures eased fears that China's economy is heading for
a hard landing, a major concern for global investors along with
the euro zone crisis and the slowdown in the United States. The
data boosted the Canadian dollar and other commodity-linked
currencies.
 "The fact that China can grow in the absence of developed
markets growth is encouraging," said Tulk, noting that
disappointing PMI data in Europe was overshadowed by good signs
from developing markets.
 At 1:33 p.m. (1733 GMT), the Canadian dollar CAD=D3 was
at C$1.0038 to the U.S. dollar, or 99.59 U.S. cents, above
Friday's North American session close of C$1.0087 to the U.S.
dollar, or 99.14 U.S. cents.
 The currency climbed as high as C$1.0021 to the U.S. dollar
in morning trade, its strongest level since Sept. 21, when it
fell through parity with the U.S. dollar due to global growth
fears.
 Tulk said the Canadian dollar had likely tested its best
level for the session.
 "We've made a couple of runs below par 24 (C$1.0024 to the
U.S. dollar), and have sort of bounced off, so barring any
additional news (out of Europe) I think we've put in our lows
for dollar-Canada and are likely consolidate within the range
of gain we've seen so far," he said.
 Final decisions by European leaders on dealing with the
debt crisis were deferred until a second summit on Wednesday
and sharp differences remain over the size of losses private
holders of Greek government bonds will have to accept.
 Jeremy Stretch, head of foreign exchange strategy at CIBC
World Markets in London, said investors will remain skittish
due to constant rumors about the next development in euro zone
debt talks, alert to any reports that Wednesday's summit could
be postponed.
 "There's still a great deal of uncertainty and nervousness
in terms of the euro zone story and I think that's keeping
investors, to an extent, on the sidelines," Stretch said.
 Canadian government bond prices were mixed. The  two-year
Canadian government bond CA2YT=RR was down 4 Canadian cents
to yield 1.103 percent, while the 10-year bond CA10YT=RR rose
5 Canadian cents to yield 2.360 percent.
 (Editing by Chizu Nomiyama and Peter Galloway)