June 7, 2012 / 12:48 PM / in 5 years

Canadian dollar firms on China rate cut, but Fed weighs

TORONTO (Reuters) - Canada’s dollar advanced for a fourth straight session against its U.S. counterpart on Thursday, boosted by China’s surprising interest rate cut, but momentum was curbed when the U.S. Federal Reserve signaled further monetary stimulus was not imminent.

The U.S. dollar gained against the euro after Fed Chairman Ben Bernanke dampened expectations that the central bank will embark sometime soon on further measures to boost the U.S. economy.

China’s rate cut to shore up its flagging economy boosted global stocks and lifted growth-linked currencies in Canada, New Zealand and Australia. The Australian dollar hit a three-week high, while the Canadian dollar climbed to C$1.0210 against the greenback, or 97.94 U.S. cents, its strongest level since May 29.

“The China news certainly helps and suggests that they will do whatever they can to maintain decent growth, and that’s solid for commodity prices and the Canadian dollar,” said Benjamin Reitzes, senior economist and foreign exchange strategist at BMO Capital Markets.

“If Bernanke had signaled more easing it would have wet risk appetite and weakened the U.S. dollar, but we didn’t quite get that far.”

Hopes of more stimulus were offset somewhat by positive U.S. data on Thursday that showed the number of Americans lining up for new jobless benefits fell last week for the first time since April.

At 1:05 p.m. EDT (1705 GMT), the Canadian dollar was at C$1.0243 against the U.S. currency, or 97.63 U.S. cents, up from Wednesday’s close at C$1.0279 against the U.S. dollar, or 97.29 U.S. cents.

News in Europe was also upbeat, as Spain soothed fears that it is being cut off from financial markets by raising more than 2 billion euros ($2.5 billion) at a bond auction, although it had to pay dearly.

Speculation that Spain could become the fourth euro zone country to need an international bailout prompted investors to sell the euro heavily last week, although European sources have said Germany and European Union officials are urgently exploring ways to support Spain’s stricken banks.

“Every central bank in the world is acknowledging the fact that their policy is currently being dictated by what’s going on in Europe,” said Chris Applin, senior dealer at Canadian Forex in London.

Since data last week showing weak U.S. job creation in May, there has been rising speculation of more stimulus measures from global central banks, though the European Central Bank dashed hopes that it would take any near-term action on Wednesday.

The Bank of Canada also held rates at 1 percent on Tuesday, but the tone from its statement signaled that its next move would be a rate hike.

The Canadian economy has been buoyed by a two-month mini-boom in job creation in March and April, while the U.S. numbers have disappointed over the same period.

The market expects that the Canadian May employment figures due out on Friday will not match the outsized job gains in the previous two months, which averaged almost 72,000 a month. The median forecast in a Reuters survey of economists is for a gain of 10,000.

Reitzes didn’t foresee the jobs data having a big impact on the Canadian dollar, adding the currency was likely to hover between C$1.02 and C$1.05 ahead of the Greek elections on June 17.

“Even if Greece stays in you have to deal with Spain and Spain’s banks, and that’s a much bigger issue,” said Reitzes. “At the end of the day Europe has to prove that they want to keep the euro and markets are not convinced.”

Canadian bond prices were mostly lower. The two-year bond fell 5 Canadian cents to yield 1.075 percent, while the benchmark 10-year bond dropped 15 Canadian cents to yield 1.825 percent.

Editing by Leslie Adler

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