October 21, 2011 / 8:35 PM / 9 years ago

CANADA FX DEBT-Europe optimism, strong CPI push C$ higher

 * C$ ends at C$1.0087 vs US$, or 99.14 U.S. cents
 * CPI jumps, slashes already long odds of rate cut
 * Europe optimism spurs risk appetite
 * Bond prices fall, Canada underperforms
 By Andrea Hopkins
 TORONTO, Oct 21 (Reuters) - The Canadian dollar ended
stronger against its U.S. counterpart on Friday as speculation
that Europe was closer to solving its debt crisis revived risk
appetite, sinking the safe-haven greenback.
 Optimism on Europe and the possibility of more action from
the U.S. Federal Reserve spurred the largest daily drop in the
U.S. dollar since August and sent investors to riskier assets
including stocks and commodity-linked currencies such as the
Canadian dollar.
 Unexpectedly strong Canadian inflation data also helped
push the Canadian currency back towards parity with the U.S.
dollar as robust price pressures slashed the already slim
chance that the central bank will cut interest rates.
 "The Canadian dollar is benefiting from the inflation data
but also the fallout in the U.S. dollar from hope of additional
Fed measures and also the associated rally in risk assets,"
said Fergal Smith, managing market strategist at Action
 The Canadian dollar CAD=D3 ended the North American
session at C$1.0087 to the U.S. dollar, or 99.14 U.S. cents,
close to the session high of C$1.0067 and well above Thursday's
North American session close of C$1.0150, or 98.52 U.S cents.
 The rise left the currency little changed on the week, just
above last Friday's close at C$1.0105 versus the U.S. dollar,
or 98.96 U.S. cents.
 While pressures including the debt crisis in Europe are
expected to keep the Bank of Canada from tightening credit
until at least next year, the unexpectedly strong rise in
consumer prices in September all but erased the chances the
bank will soon trim official interest rates to support growth.
 The data showed Canada's annual core inflation rate jumped
in September to 2.2 percent, its highest level since December
2008, from 1.9 percent in August. Analysts had forecast a 1.9
percent rate in September. [ID:nN1E79K02G]
 "The jump in the core index is quite surprising. It's quite
a large increase for the second straight month," said Sal
Guatieri, senior economist at BMO Capital Markets.
 "On the surface, to the extent it reduces expectations of a
bank rate cut, it's positive for the Canadian dollar."
 Europe remained the biggest focus for markets, with
sentiment turning positive once again as investors bet
policymakers will move forward in coming days to resolve the
euro zone's two-year-old debt crisis.
 Global equities surged and the euro gained as doubts about
the ability of European leaders to tackle the crisis eased.
German government sources said there were no serious
differences between Germany and France ahead of a closely
watched summit on Sunday in Brussels. [MKTS/GLOB]
 The announcement of a second summit meeting to follow on
Wednesday added to the session's positive tone. France and
Germany - the two biggest economies in the euro zone - are
spearheading the effort to adopt a comprehensive strategy to
fight a debt crisis that threatens to engulf the entire region.
[ID:nB4E7LA018] [ID:nL5E7LK68G].
 Canadian government bond prices fell across the board. The
two-year Canadian government bond CA2YT=RR was down 6
Canadian cents to yield 1.076 percent, while the 10-year bond
CA10YT=RR fell 41 Canadian cents to yield 2.359 percent.
 (Editing by Jeffrey Hodgson and Peter Galloway)

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