CANADA FX DEBT-Stimulus hopes push C$ to 6-week high

* C$ hits 6-wk high at $1.0121 vs US$, or 98.80 U.S cents
    * Closes at C$1.0125 vs US$, or 98.77 U.S. cents
    * Currency joins global stocks, commodities rally
    * Poll sees C$ firming to US$ parity in 1 year 
    * Canadian bond prices mostly lower

    By Jennifer Kwan
    TORONTO, July 3 (Reuters) - Canada's dollar touched a
six-week high against the U.S. currency on Tuesday, boosted by a
rally in oil prices and growing expectations central banks
outside of Canada will take more action to prop up the world
    The worsening deceleration in global manufacturing activity
around the world - highlighting the drag on global growth from
the euro zone debt crisis - has contributed to the view that
central banks, including the U.S. Federal Reserve, will have to
    The belief that the Fed will deliver a third round of
quantitative easing, or buying assets with freshly created
money, gained momentum on Monday, when data showed the giant
U.S. manufacturing sector contracted for the first time in
nearly three years in June.  
    "People are expecting more in the way of QE3 now,
potentially as soon as August, and that's one of the factors we
think that is preventing more of an erosion of risk appetite,"
said Mark Chandler, head of Canadian fixed income and currency
strategy at RBC Capital Markets.
    "If they do go ahead and provide relief on that front, that
makes for a better sort of longer-run outlook in terms of the
(Canadian) currency and maybe underpins some commodity prices as
    The Canadian dollar typically strengthens when commodity
prices rise and the global growth outlook improves because the
country is a major exporter of natural resources.
    The Canadian currency closed C$1.0125 versus the
U.S. dollar, or 98.77 U.S. cents, after earlier embracing a high
of C$1.0121, or 98.80 U.S. cents, its loftiest level since May.
    On Friday, the North American session closed at C$1.0181 to
the greenback, or 98.22 U.S. cents. Canadian stock and bond
markets were closed on Monday for the Canada Day long weekend,
as were domestic trading desks at Canadian banks.
    Greg Moore, foreign exchange strategist at TD Securities,
said the Canadian dollar rally on Tuesday was further positive
reaction to pledges made by European Union leaders late last
    Euro zone leaders agreed to let their rescue fund inject aid
directly into stricken banks from next year and intervene on
bond markets to support troubled member states.
    The agreement helped push the Canadian currency up more than
1.5 percent, while U.S. and global stocks notched gains of 2
percent or more. Moore said Tuesday's rally was also on the back
of strong oil prices.
    U.S. crude oil futures shot up more than 4 percent on
Tuesday, as tensions over Iran's threat to block the Strait of
Hormuz shipping lane and its testing of missiles capable of
hitting Israel sparked supply concerns. 
    On the technical front, Moore said if the currency breaks
through the 200-day moving average, currently about C$1.0120, it
could return to the 100-day moving average around C$1.0052.
    In other news, Canada's currency is seen weakening over the
next six months before firming to the one-for-one mark with the
U.S. dollar, a Reuters poll showed, helped by the prospect of
central bank easing abroad even as the Bank of Canada looks to
    Canadian bond prices were mostly lower across the curve with
    Canada's two-year government bond down 3 Canadian
cents to yield 1.042 percent, while the benchmark 10-year bond
 slipped 8 Canadian cents to yield 1.745 percent.