TORONTO (Reuters) - Canada’s dollar rose against its U.S. counterpart on Wednesday, boosted by broad firmness in global equities and as the Bank of Canada kept its rate-hike stance while most other major advanced economies are moving in the opposite direction.
The currency rose to C$1.0101 versus the greenback, or 99.00 U.S. cents, its strongest level since July 5, as Governor Mark Carney defended its position by saying Canada cannot “cut and paste” monetary policy.
“We’ve weathered the storm a lot better than most other countries, especially in Europe and the States. The market is still taking his comments that rates will have to go up some time as a positive,” said David Bradley, director of foreign exchange trading at Scotiabank.
“ The Canadian dollar is benefiting from that purely from a yield play.”
The Canadian dollar ended at C$1.0107 versus its U.S. counterpart, or 98.94 U.S. cents, up from Tuesday’s finish at C$1.0126 or 98.76 U.S. cents.
Also supporting the currency was a move higher in global equities, with the S&P 500 .SPX hitting its highest level since early May on Wednesday as corporate profits from bellwethers like Intel (INTC.O) and Honeywell (HON.N) defied the market’s fears about global growth. .N
Equities were also supported by optimism Federal Reserve Chairman Ben Bernanke may act to stimulate the U.S. economy if needed, underscoring his concerns especially in the job market.
But stocks diverged from other asset classes. The euro fell broadly on Wednesday after comments by German Chancellor Angela Merkel reignited worries about the euro zone debt crisis and government bond prices rose over fears of slow economic growth.
Germany - considered Europe’s safest haven - sold bonds at a negative yield for the first time.
The top-up auction of two-year bonds raised 4.173 billion euros and follows short-term Treasury bill sales at negative yields by Germany and other higher-rated euro zone states.
Traders also cited a media report that quoted German Chancellor Angela Merkel as saying she could not be sure the European project would work.
“I think that Germany issuing two-year bonds with a negative yield for the first time and Merkel’s comments certainly, in my mind, underscore what’s wrong in Europe and will weigh on the euro,” said Jack Spitz, managing director of foreign exchange at National Bank Financial.
Spitz noted that the 200-day moving average was still providing significant support for the U.S. dollar versus Canada’s around C$1.0109: “A close below the 200-day moving average technically does set up dollar/Canada for a move lower towards better support near parity.”
Canadian bond prices climbed across the curve with the two-year government bond up 2 Canadian cents to yield 0.964 percent, while the benchmark 10-year bond added gained 24 Canadian cents to yield at 1.616 percent.
Additional reporting by Claire Sibonney; Editing by Leslie Gevirtz