CANADA FX DEBT-C$ firms to two-week high as Greece hopes rise

Fri Nov 23, 2012 3:48pm EST

* C$ at C$0.9920 to the US$, or $1.0080
    * Hope for Greece aid deal, improving German outlook cheer
investors
    * Currency breaks through week-long block
    * Canada inflation higher than forecast, still tame
    * Bank of Canada rate increase seen a long way off

    By Alastair Sharp
    TORONTO, Nov 23 (Reuters) - The Canadian dollar hit a
two-week high on Friday, boosted by hopes that Greece's lenders
were nearing an agreement to release further aid to help the
debt-stricken country and by a rise in German business morale.
    The international developments overshadowed Canadian data
showing consumer prices rose a bit more than expected in
October, but inflation remained well below the central bank's 2
percent target, suggesting interest rate hikes are still a long
way off. 
    "It's, in many respects, the global macro developments that
shape the landscape in the FX world, including the Canadian
dollar," said Jack Spitz, managing director of foreign exchange
at National Bank Financial. 
    Greece's finance minister said the International Monetary
Fund has relaxed its debt-cutting target for the heavily
indebted country and only a 10 billion euro ($13 billion) gap
remains to be filled for a vital aid installment to be paid to
Greece. 
    Optimism on Greece, hopes that U.S. lawmakers can agree on a
solution to avoid a fiscal crisis, and data showing an improving
global economic outlook have helped shares, the Canadian dollar
and other riskier assets strengthen this week.
    The positive data included a German business survey that
pointed to rising corporate optimism in Europe's biggest
economy. 
    At late afternoon, the Canadian currency was at
C$0.9920 to the greenback, or $1.0080, up from its close of
C$0.9972, or $1.0028, North American close on Thursday. It was
on track for a gain of 0.9 percent on the week.
    Its rise accelerated after it breached C$0.9955, the lower
end of a tight range the currency had moved in all week.
    National Bank's Spitz said the currency could get a further
boost soon if the federal government gives the green light to
two pending foreign acquisitions of Canadian resource companies;
a $15.1 billion takeover bid by China's CNOOC for oil
and gas producer Nexen Inc and Petronas of
Malaysia's C$5.2 billion bid for Progress Energy Resources
.
    "In the event that the federal government says that both
acquisitions are of net benefit to Canada, there is likely to be
some Canadian dollar buying because both are cash acquisitions,"
he said. 
    
    CANADIAN INFLATION TAME
    The Canadian data showed year-on-year inflation in October
held steady at 1.2 percent, unchanged from September but above
the 1.1 percent forecast of market players. Core inflation,
which strips out prices for gasoline and other volatile items,
was unchanged at 1.3 percent. Market players had forecast 1.2
percent core inflation.
    "What we have in Canada are inflation levels that are
well-contained and even though we saw the headline ticked up
slightly more than expected, core was fairly subdued," said
Camilla Sutton, chief currency strategist at Scotiabank.
    "Taken as a whole, I don't think this makes any material
change to expectations for the Bank of Canada."
       
  
    Even so, overnight index swaps, which trade based on
expectations for the central bank's key policy rate, showed that
 traders increased their small bets on a rate hike in late 2013
slightly after the data was released. 
    Higher interest rates tend to support currencies by
attracting international capital flows.
    Canada's two-year bond was off 3 Canadian cents
to yield 1.124 percent, while the benchmark 10-year bond
 traded down 13 cents to yield 1.788 percent.
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