CANADA FX DEBT-C$ rallies for 2nd day on hawkish Bank of Canada

Wed Dec 5, 2012 8:14am EST
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* C$ firms to C$0.9918 vs US$, or $1.0083
    * Bond prices little changed across the curve
    * Bank of Canada, global growth hopes lift sentiment

    By Claire Sibonney
    TORONTO, Dec 5 (Reuters) - The commodity-linked Canadian
dollar hit a more than one-week high against the U.S. unit
Wednesday after the Bank of Canada reiterated it will need to
tighten monetary policy over time, and on signs China's economic
recovery was on track. 
    Canada's central bank held its overnight lending rate steady
on Tuesday at 1 percent, as expected. The bank has kept the rate
unchanged for more than two years, the longest period of Bank of
Canada inactivity since the early 1950s.
    But the bank's unwavering opinion that it may need to hike
interest rates, not cut them, boosted confidence in the
currency, prompting it to outperform most other majors,
including the euro. 
    "There's an element of catch-up perhaps at play here because
people were obviously a little mindful ahead of the bank
yesterday and the fact that there wasn't any change in stance or
tone I think has just encouraged a little bit of residual CAD
strength to come back in," said Jeremy Stretch, head of FX
strategy at CIBC World Markets in London.
    Meanwhile, Chinese Communist Party chief Xi Jinping said the
country will maintain its fine-tuning of economic policies in
2013 to ensure stable economic growth, sparking a broad rally in
equities, commodities and growth-related currencies.
    At 8:00 a.m. (1500 GMT), the Canadian dollar stood
at C$0.9918 versus the greenback, or $1.0083, firmer than
Tuesday's North American session close at C$0.9932, or $1.0068.
Earlier, the currency touched C$0.9910, or $1.0091, its
strongest level since Nov. 27.
    Stretch said a close stronger than the 100-day moving
average at C$0.9913 could fuel a near-term Canadian dollar rally
to the C$0.9875 area.
    Economists and currency strategists polled by Reuters expect
the Canadian dollar to strengthen against its U.S. counterpart
over the next year, with a recovering global economy and a
possible Bank of Canada interest rate increase providing
    Over six months, the survey saw the currency strengthening
to C$0.9800, or $1.0204, and holding at that level a year from
    However, investors are still on edge as talks between the
White House and Congress to avoid year-end tax hikes and
spending cuts showed little progress. 
    Canadian bond prices were little changed across the curve.
The two-year bond was off half a Canadian cent to
yield 1.062 percent, and the benchmark 10-year bond 
was down 5 Canadian cents to yield 1.700 percent.