CANADA FX DEBT-C$ has biggest gain of 2012 on China growth talk

Thu Apr 12, 2012 4:48pm EDT

* C$ ends at C$0.9945 vs US$, or $1.0055
    * Biggest daily C$ gain since Nov
    * China data talk boosts risk sentiment
    * Fed, ECB signal possible stimulus moves
    * Bond prices mostly lower

    By Jon Cook	
    TORONTO, April 12 (Reuters) - The Canadian dollar had its
biggest daily jump against its U.S. counterpart this year on
Thursday as equity markets surged on talk of higher growth in
China, signs of improvement in Europe's debt crisis and hope for
further easing by major central banks.	
    Shares in North America and Europe rose more than 1 percent
as Italian and Spanish bond yields fell and traders cited talk
that China on Friday may report data that will top forecasts for
first-quarter growth of 8.3 percent. 	
    "Obviously if that were to happen it would be very positive
for risky assets and the Canadian dollar," said Charles
St-Arnaud, Canadian economist and currency strategist at Nomura
Securities International in New York.	
    Hopes that China can avoid a hard landing were supported by
data that showed China's bank lending spiked to 1.01 trillion
yuan ($160.1 billion) in March, a sign of fresh traction in
Beijing's efforts to boost credit creation. 	
    That helped underpin a move higher by commodity-linked
currencies, which had weakened recently on signs of a cooling in
the Chinese and U.S. economies and an escalation of Europe's
lingering debt crisis.	
    Both the Canadian and Australian dollars were big gainers
against the greenback. 	
    The Canadian dollar finished at C$0.9945 versus the
U.S. dollar, or $1.0055, up nearly 1 cent from Wednesday's close
at C$1.0042 versus the U.S. dollar, or 99.58 U.S. cents. It was
its biggest daily increase since Nov. 30.	
    The currency shrugged off soft U.S. data that showed an
unexpected rise in weekly jobless claims that came in the wake
of last week's disappointing March employment report, increasing
doubts about the American economic recovery. 	
    However, St-Arnaud cautioned that the Easter holiday likely
contributed to the spike in U.S. claims.	
    The numbers followed comments by the Fed's Janet Yellen on
Wednesday who left the door open to further stimulus action if
needed. 	
    European Central Bank Executive Board member Benoit Coeure
also said further ECB bond buying is an option as concern
mounted over rising bond yields in Italy and Spain. 	
    Data from Canada on Thursday offered little direction for
the Canadian dollar. A Statistics Canada report that revealed a
far smaller than expected trade surplus was muted by a rise in
February housing prices. 	
    "The Canadian dollar overall is quite stable," said Darcy
Browne, a managing director of foreign exchange trading at CIBC
World Markets. "It's traded within 1 percent on either side of
parity for two months now."	
    One of the scenarios that could drive the Canadian dollar
out of its recent narrow range would be a shift in expectations
on the timing of the next rate move by the Bank of Canada.	
    Strong Canadian housing data and a jump in employment in
March have economists predicting the central bank may raise its
key lending rate, now at 1 percent, well ahead of the Fed, which
has said it intends to keep rates near zero until late 2014.	
    The median forecast in a Reuters poll of 40 economists and
strategists shows the next interest rate hike will come in the
second quarter of 2013. 	
    "The main argument for the rate hike is centered around
what's going on in the housing market and household debt in
Canada," said St-Arnaud, who was the lone participant to predict
a rate bump as soon as next quarter.	
    The high housing prices, combined with extremely low
interest rates, have tempted Canadians to take on record levels
of debt. Bank of Canada Governor Mark Carney has called it the
single biggest domestic risk to the economy.  	
    "The bank could hike now mainly to force a change of
behavior on the side of consumers," St-Arnaud added.	
    However, none of the respondents saw a change in rates at
the next Bank of Canada policy announcement date, April 17. 	
    Canadian government bond prices were mostly lower, with
Canada's two-year bond edging down 2 Canadian cents
to yield 1.235 percent. The 10-year bond fell 29
Canadian cents to yield 2.049 percent.
FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.