October 4, 2012 / 7:33 PM / in 5 years

C$ hits 3-day high; helped by ECB, Bank of Canada

TORONTO (Reuters) - The Canadian dollar hit its strongest level in several days against the U.S. currency on Thursday, helped by signs the European Central Bank intends to tackle the region’s debt crisis and more hawkish talk from the Bank of Canada.

The resource-linked currency firmed as high as C$0.98 to the greenback, or $1.0204, as gold and oil bounced and copper edged higher and Canadian and U.S. equities markets also gained.

A slower rise in the number of Americans filing new claims for unemployment benefits also contributed to gains.

But the main thrust came from ECB President Mario Draghi, who said the central bank was primed to buy troubled euro zone bonds and that conditions linked to such purchases need not be painful.

“More than anything, it’s Draghi being more than willing to drive on, and this feel-good factor is sneaking over to the equities and the loonie gets dragged along,” said Dean Popplewell, chief currency strategist at OANDA, referring to the colloquial term for the Canadian currency.

At 2:56 p.m. (1856 GMT) the Canadian dollar was at C$0.9805 to the U.S. dollar, or $1.0198, up from C$0.9881, or C$1.0120 on Wednesday. At C$0.98 to the dollar it was at its strongest since October 1. It had hit a four-week low on Wednesday.

Popplewell pointed out, however, that Canada’s dollar remains stuck in a relatively tight range between C$0.9750 and the psychologically important C$0.99 level.

CANADA STILL HAWKISH

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.”

The currency later slipped slightly before recovering after the U.S. Federal Reserve released minutes from last month’s meeting approving its third round of aggressive stimulus measures, which showed the Fed considering adopting numerical thresholds to serve as guideposts for policy.

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 and global growth remains tepid.

“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 oil prices given the country’s role as an oil and gas exporter.

Canadian government bond prices were lower across the curve, with the two-year bond slipping 7 Canadian cents to yield 1.094 percent, while the benchmark 10-year bond fell by 37 Canadian cents, to yield 1.759 percent.

Reporting by Alastair Sharp; Editing by Theodore d'Afflisio

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