December 17, 2012 / 1:27 PM / in 6 years

Canadian dollar firms as sentiment buoyed by U.S. budget talks

TORONTO (Reuters) - The Canadian dollar strengthened against the greenback on Monday after earlier touching a one-week low, as some optimism over U.S. budget talks helped support the commodity-linked currency.

A man holds the new Canadian 100 dollar bill made of polymer in Toronto November 14, 2011. REUTERS/Mark Blinch

The first real movement in talks over the so-called fiscal cliff began on Sunday, with Republican House Speaker John Boehner edging closer to President Barack Obama’s demands on taxation.

“The general undertone for the day seems to be optimism on budget talks. John Boehner did agree to raise rates on the wealthy in exchange for entitlement cuts. That’s a big move in terms of the standoff,” said Rahim Madhavji, President at Knightsbridge Foreign Exchange.

“That optimism is just carrying through in the market today ...(the Canadian dollar) has been grinding higher, but it does need a catalyst to continue. The market undertone is still the same as over the last week.”

At 9:55 a.m. (1455 GMT), the Canadian dollar stood at C$0.9844 versus the U.S. dollar, or $1.0158, compared with C$0.9865, or $1.0137, at Friday’s North American session close.

Camilla Sutton, chief currency strategist at Scotiabank saw U.S. dollar resistance against Canada’s at the 100-day moving average at C$0.9893 and support around C$0.9832.

Earlier, the currency touched C$0.9882, or $1.0119, its weakest level since December 10.

“There doesn’t really seem to be any specific news that would justify that, so it seems like it’s probably flow driven, which I would suggest implies that it does fade,” said Sutton, adding that the U.S. budget talks were helping risk sentiment in other currencies.


The Canadian dollar was outperforming most major currencies, including the Japanese yen, where it hit its strongest level since May 6, 2011 following a landslide election victory for Japan’s Liberal Democratic Party, which is committed to aggressive monetary easing.

Analysts also said a smattering of North American data did little to move the currency.

The Canadian dollar’s growing reputation as a safe-haven currency, however, was supported by data which showed that international investors bought C$13.3 billion in Canadian securities during the month of October.

“This interest, however, does come at a cost for the wider economy. The Bank of Canada has noted that investor demand is one of the factors that had propped up the currency, which makes the eventual rotation in the drivers of growth to net exports that much more difficult to achieve,” David Tulk, chief Canada macro strategist at TD Securities, said in a research note.

Canadian government bond prices slipped across the curve, with the two-year bond losing 4 Canadian cents to yield 1.150 percent, and the benchmark 10-year bond shedding 24 Canadian cents to yield 1.817 percent.

Additional reporting by Claire Sibonney; Editing by Theodore d'Afflisio

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