CANADA FX DEBT-C$ rises as Bank of Canada keeps rate stance

Wed Jul 18, 2012 2:54pm EDT

* C$ up at C$1.0108 vs US$, or 98.93 U.S. cents
    * Currency rises to highest in nearly two weeks
    * Bank of Canada defends rate hike signal
    * Bond prices climb across curve

    By Jennifer Kwan
    TORONTO, July 18 (Reuters) - Canada's dollar rose against
its U.S. counterpart on Wednesday, boosted by broad firmness in
global equities and as the Bank of Canada maintained its
rate-hike stance even while most other major advanced economies
are moving in the opposite direction.
    The currency rose to C$1.0101 versus the greenback,
its strongest level since July 5, as Governor Mark Carney
defended its position by saying Canada cannot "cut and paste"
monetary policy. 
    "we've weathered the storm a lot better than most other
countries especially in Europe and the States. The market is
still taking his comments that rates will have to go up some
time as a positive," said David Bradley, director of foreign
exchange trading at Scotiabank.
    " The Canadian dollar is benefiting from that purely from a
yield play." 
    At 2:30 p.m. EDT (1830 GMT), the Canadian dollar 
was at C$1.0108 versus its U.S. counterpart, or 98.93 U.S.
cents, up from Tuesday's finish at C$1.0126 or 98.76 U.S. cents.
    Also supporting the currency was a move higher in global
equities, with the S&P 500 hitting its highest level
since early May on Wednesday as corporate profits from
bellwethers like Intel and Honeywell defied the
market's fears about global growth. 
    Equities were also supported by optimism Federal Reserve
Chairman Ben Bernanke may act to stimulate the U.S. economy if
needed, underscoring his concerns especially in the job market.
    But stocks diverged from other asset classes. The euro fell
broadly on Wednesday after comments by German Chancellor Angela
Merkel reignited worries about the euro zone debt crisis and
government bond prices rose over fears of slow economic growth.
 
    Germany - considered Europe's safest haven - sold bonds at a
negative yield for the first time.
    The top-up auction of two-year bonds raised 4.173 billion
euros and follows short-term Treasury bill sales at negative
yields by Germany and other higher-rated euro zone states.
 
    Traders also cited a media report that quoted German
Chancellor Angela Merkel as saying she could not be sure the
European project would work.
    "I think that Germany issuing two-year bonds with a negative
yield for the first time and Merkel's comments certainly, in my
mind, underscore what's wrong in Europe and will weigh on the
euro," said Jack Spitz, managing director of foreign exchange at
National Bank Financial.
    Spitz noted that the 200-day moving average was still
providing significant support for the U.S. dollar versus
Canada's around C$1.0109: "A close below the 200-day moving
average technically does set up dollar/Canada for a move lower
towards better support near parity."
    Canadian bond prices climbed across the curve with the
two-year government bond up 2 Canadian cents to yield
0.964 percent, while the benchmark 10-year bond 
added gained 25 Canadian cents to yield at 1.615 percent.
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