April 29, 2011 / 8:47 PM / 9 years ago

CANADA FX DEBT-C$ hits 3-1/2 yr high despite GDP, election

   * C$ rises to C$0.9464 vs US$, or $1.0566
 * Secular US$ slide, firm fundamentals cited
 * Light flows at month end accentuate move
 * Canada's February GDP shrinks unexpectedly
 * Markets eye NDP rise in election campaign
 (Updates with closing numbers)
 By Claire Sibonney
 TORONTO, April 29 (Reuters) - Canada's dollar hit a 3-1/2
year high against a broadly weaker greenback on Friday,
shrugging off uncertainty over Monday's federal election and
data that showed Canada's economy shrank in February.
 "The fact that the Canadian dollar continues to rally amid
a secular decline in the U.S. dollar is of no great surprise,"
said Jack Spitz, managing director of foreign exchange at
National Bank Financial.
 "The fact that it was able to withstand a miss on the GDP
and ahead of any kind of political uncertainties leading into
the election has been more of an indicator of the fundamental
support for the currency going forward."
 The Canadian dollar fell early in the day as data showed
Canada's gross domestic product slipped 0.2 percent in
February, reinforcing expectations the central bank will hold
interest rates steady until the second half of this year.
 The currency CAD=D4 finished the week at C$0.9464 to the
U.S. dollar, or $1.0566, up from Thursday's North American
finish of C$0.9510 to the U.S. dollar. It rose as high as
C$0.9450 to the U.S. dollar, or $1.0582, on Friday, its
strongest level since November 2007.
 Some analysts say it may now target the modern-day high of
C$0.9059, or US$1.1039, reached in late 2007.
 Strong oil prices and positive U.S. equities lent support,
as did second thoughts about the weak February GDP number.
 "(The GDP data) doesn't take much away from what's going to
be a strong first quarter for the Canadian economy, so any
weakness that we see in the Canadian dollar as a result of this
number should be relatively short-lived," said David Tulk,
chief Canada macro strategist at TD Securities.
 Contributing to volatility during the day was end-of-month
positioning and thin volumes due to holidays in Britain and
 Looking ahead, currency traders are keeping a close eye on
Monday's federal election. The left-leaning New Democrats have
closed in on the incumbent Conservatives in the polls just days
before the vote. [ID:nN29120747]
 The unprecedented surge in the polls by the NDP has forced
apathetic markets to sit up and take notice of the party's
platform, fretting about its plans to raise corporate taxes,
spend more and launch a tougher energy policy. [ID:nN27126329]
 "The only thing I think is going to be market-moving is the
election on Monday night. I think the NDP can play a spoiler
role in the Canadian dollar rally," said Firas Askari, head of
foreign exchange trading at BMO Capital Markets.
 "If they are the official opposition then I think people
will take some Canadian dollar bets off the table."
 Canadian bond prices extended gains across the curve after
the GDP data, outperforming U.S. Treasuries. [US/]
 The two-year bond CA2YT=RR was up 6 Canadian cents to
yield 1.704 percent, while the 10-year bond CA10YT=RR added
20 Canadian cents to yield 3.200 percent.
 (Additional reporting by Solarina Ho and Jeffrey Hodgson;
editing by Rob Wilson and Peter Galloway)

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