CANADA FX DEBT-C$ firms on German sentiment, Fed hopes

Tue Mar 13, 2012 8:29am EDT

* C$ at C$0.9908 vs US$, or $1.0093

* German sentiment at highest since July 2010

* Bond prices lower across the curve

By Jon Cook

TORONTO, March 13 (Reuters) - Canada's dollar advanced against the U.S. currency on Tuesday after a European economic think tank said there was "no chance" of a German recession and on expectations there will be no fresh stimulus moves by the U.S. Federal Reserve later in the day.

The ZEW survey for March showed German analyst and investor sentiment rising significantly more than expected to its highest level since June 2010. ZEW economist Michael Schroeder said the boost was due to optimism over Greece's debt deal and the feeling that the worst for Europe's banking sector was over.

"Sentiment overnight has been a touch better than yesterday," said Charles St-Arnaud, Canadian economist and currency strategist at Nomura Securities International in New York.

At 8:12 a.m. (1212 GMT), the Canadian dollar stood at C$0.9908 versus the U.S. dollar, or $1.0093, up from Monday's North American session close at C$0.9927 versus the U.S. dollar, or $1.0074.

In addition, the Federal Reserve is expected to hold steady on monetary policy when it concludes its one-day meeting on Tuesday, acknowledging a mildly brighter economic outlook while refraining from any suggestion that further easing is now off the table.

"They will have to take note of the improvement in the labor market that we have seen over the past few months," said St-Arnaud. "So we should see the Canadian dollar appreciate today."

U.S. data last Friday showed February was the third straight month to record a gain of more than 200,000 jobs. Prior to the Fed statement, investors were also looking to February U.S. retail sales, with economists in a Reuters survey expecting a 1.0 percent month-over-month rise compared with a 0.4 percent increase in January.

The American recovery story has helped support a surge in the Canadian dollar, which has outperformed most major currencies over the last week.

St-Arnaud said he saw the Canadian dollar possibly strengthening to Friday's high around C$0.9872.

Canadian bond prices were lower across the curve, with the two-year bond down 2 Canadian cents to yield 1.184 percent, while the 10-year bond fell 7 Canadian cents to yield 2.007 percent.

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