Canadian dollar hits 2-week high on rate outlook

Wed Jun 2, 2010 5:12pm EDT
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By Ka Yan Ng

TORONTO (Reuters) - The Canadian dollar hit a two-week high against the U.S. currency on Wednesday as healthy U.S. economic data spurred risk appetite and the market bought into the notion that the Bank of Canada will continue to raise interest rates.

Figures showing stronger-than-expected U.S. pending home sales for April provided more evidence of U.S. economic recovery.

That sparked on strong session on North American stock markets, which pushed the Canadian dollar to an intraday high at C$1.0371 to the U.S. dollar, a level not seen since May 18.

"It's just some reversal from yesterday's decent selloff with a little risk-on today and that clearly benefits the Canadian dollar," said Benjamin Reitzes, economist at BMO Capital Markets.

The Canadian dollar closed at C$1.0384 to the U.S. dollar, or 96.30 U.S. cents, up from C$1.0540 to the U.S. dollar, or 94.88 U.S. cents, at Tuesday's close.

The currency was initially weaker as the market struggled to clarify its view of Tuesday's Bank of Canada moves. The bank raised interest rates on Tuesday, as expected, but gave no clear indication whether it would continue to do so.

Currencies usually strengthen as interest rates rise as higher rates attract capital flows.

As the day progressed, market consensus grew that rates will have to continue to rise this year from current emergency-level lows.   Continued...