Canada dollar rallies after Bank of Canada survey

Mon Jul 7, 2008 4:41pm EDT
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar rebounded to finish higher versus the U.S. dollar on Monday after the Bank of Canada Business Outlook Survey seemed to point to increased inflationary risks and spurred talk of interest rate hikes.

Canadian bond prices ended higher across the curve as stock markets fell, sparking demand for government debt.

The Canadian dollar closed at C$1.0189 to the U.S. dollar, or 98.15 U.S. cents, up from C$1.0200 to the U.S. dollar, or 98.04 U.S. cents, at Friday's close.

The Bank of Canada Business Outlook Survey sparked a rally in the currency and lifted it from its session low as the market took its findings to signal that the central bank would become more hawkish.

In the survey, the Bank of Canada said businesses surveyed in the second quarter were relatively upbeat on their sales outlooks and investment plans compared with the first quarter, even though the economy remained sluggish.

"This was as strong a piece of economic data and as big a surprise as you're ever going to get," said Eric Lascelles, chief economics and rates strategist at TD Securities.

"It's really one of those reports that surprised on several fronts, all in the same direction and all supporting the notion that the Bank of Canada needs to be more hawkish."

The report sent an immediate bid into the Canadian dollar, which shot to C$1.0150 to the U.S. dollar, or 98.52 U.S. cents, moments after it was released. That allowed it to erase losses suffered earlier when a strong U.S. dollar forced the Canadian currency down to C$1.0232 to the U.S. dollar, or 97.73 U.S. cents.   Continued...

<p>Newly pressed Canadian one dollar coins, also know as loonies, at the Royal Canadian Mint in Winnipeg, November 14, 2007. REUTERS/Fred Greenslade</p>