TORONTO (Reuters) - Canada’s dollar rallied to a four-month high against the greenback on Thursday, as stronger-than-expected U.S. economic data and the European Central Bank’s plan to tackle the region’s debt crisis fueled buying of the commodity-linked currency.
Global stock markets and commodity prices also jumped on news of the ECB’s aggressive bond-buying program and firm U.S. data, which included a report that showed the pace of growth in the massive U.S. service sector had accelerated in August on the back of a rebound in employment and exports.
“Obviously we’re having a very good run in risk ... certainly the services ISM numbers that we got out of the U.S. I think has encouraged a more buoyant risk environment,” said Jeremy Stretch, head of foreign exchange strategy with CIBC World Markets in London.
The Canadian currency finished its North American session at C$0.9828 against the greenback, or $1.0175, up nearly a full cent from Wednesday’s finish of C$0.9909, or $1.0092. It was the currency’s biggest one-day gain since June 29.
The string of positive U.S. data helped power the currency to a session high of C$0.9809, or $1.0195 on Thursday - its strongest level since April 30. The currency had firmed to a high of C$0.9843 three times in recent weeks before breaking through.
The next critical level was C$0.98, said Adam Button, a currency analyst at ForexLive in Montreal. Breaching that level could strengthen the Canadian dollar further, he said - at least until markets get more clarity from a U.S. Federal Reserve meeting next week.
Other positive U.S. data included news that the private sector added 201,000 jobs in August - more than economists had expected - while the number of Americans filing new claims for jobless benefits fell last week to the lowest level in a month.
The data is the latest to hint that the economy of Canada’s largest export market is gaining steam even as unemployment remains high. Both Canada and the United States will be releasing August employment data on Friday.
“The market is pricing in a stronger jobs report than we were a day ago. That can be a dangerous trade because U.S. job numbers are often very volatile and unpredictable,” Button cautioned.
“If we see strong numbers or even solid numbers ... then we will see the Canadian dollar touch new highs for the year.”
Markets were also buoyed by confirmation the ECB agreed to launch a new and potentially unlimited bond-buying program to lower borrowing costs for struggling euro zone countries.
Seeking to back up his July pledge to do whatever it takes to preserve the euro, ECB President Mario Draghi said the new plan, aimed at the secondary market, would address bond market distortions and “unfounded” fears of investors about the survival of the euro.
“(There‘s) certainly a lot of optimism in Europe and that will translate into higher commodity prices and a higher Canadian dollar,” said Button, who was nonetheless disappointed the ECB did not offer new details.
Canadian government bonds were lower across the curve, with the two-year bond falling 10 Canadian cents to yield 1.163 percent. The benchmark 10-year bond price was down 77 Canadian cents, to yield 1.838.
Editing by Jeffrey Hodgson