October 4, 2012 / 2:18 PM / in 5 years

Canadian dollar hits session high after Bank of Canada, ECB

TORONTO (Reuters) - The Canadian dollar hit a session high versus its U.S. counterpart on Thursday as the Bank of Canada said it is still looking to raise interest rates and as traders switched focus from the faltering global recovery to the timing of a European bond buyback.

At 9:32 a.m. (1332 GMT) the Canadian dollar was at C$0.9837 to the U.S. dollar, or $1.0165, up from C$0.9881, or C$1.0120 on Wednesday.

The currency had slipped to a four-week low on Wednesday, but recovered some of those losses later in the day as the price of oil rose. <O/R>

The Bank of Canada is still looking at the possibility of raising interest rates, Deputy Governor Tiff Macklem said on Thursday, in comments that contrasted with the easing stance of the U.S. Federal Reserve. Macklem also said, however, that there is some slack in the labor market that has not been taken up by the recovering economy.

"I would suggest the outlook for global growth has deteriorated and continues to do so, however for most investors it's a matter of deciding whether it's the global growth outlook or monetary policy that matters," said Camilla Sutton, chief currency strategist at Scotiabank.

"For us, it's Fed action, particularly Fed action versus the Bank of Canada's stance."

But some investors brushed off any possibility that Canada's central bank could raise interest rates at a time when many of the world's other major economies are moving in the opposite direction.

"There is not a snowball's chance in Hades that they can raise rates anytime soon," said John Curran, senior vice president at CanadianForex.

He said a broader downswing in the price of oil would likely weigh on the Canadian currency, which often follows the lead of crude prices given the country's role as an oil and gas exporter.

European Central Bank President Mario Draghi said the ECB was primed to buy troubled euro zone bonds when conditions are right and that this stance has already calmed financial market tension.

Later on Thursday, the U.S. Federal Reserve will release the minutes of the meeting that approved its third round of aggressive stimulus measures last month.

Canadian government bond prices were lower, with the two-year bond slipping 4 Canadian cents to yield 1.084 percent, while the benchmark 10-year bond CA10YT=RR fell by 24 Canadian cents, to yield 1.734 percent.

Reporting by Alastair Sharp; Editing by Peter Galloway

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