CANADA FX DEBT-C$ hangs on to gains on purchasing activity rise

Mon Jan 7, 2013 4:40pm EST

* C$ at C$0.9857 versus US$, or $1.0145

* Ivey PMI helps C$ adds to gains notched last week

* Global stock markets lower, commodity prices mixed

By Alastair Sharp

TORONTO, Jan 7 (Reuters) - The Canadian dollar gained against its U.S. counterpart on Monday, with a rise in purchasing activity for December helping the currency hold on to rises notched late last week as investors expressed guarded optimism about the economy.

Ivey Purchasing Managers Index data released on Monday showed a modest increase in purchases offset by falls in its readings for employment, inventories and prices.

The report led to a measured appreciation in the Canadian dollar as it added some support to a robust jobs report from Statistics Canada last Friday that pushed the currency markedly stronger.

"Either we have a delay on the day of reckoning ... or it might well be that we are currently underestimating the pace of growth in the Canadian economy," said Jimmy Jean, economic strategist at Desjardins Securities in Montreal.

"The mood is currently optimistic on the markets," Jean said, adding that the currency could get a further boost this week if a balance of trade report due out on Friday is positive.

Global stock markets stalled on Monday, while commodity prices were mixed after riskier assets rose last week, when the Canadian currency gained 1 percent after strong job growth and a partial deal reached in U.S. debt talks.

"The Canadian dollar has retained its strength from last Friday's employment data and the move that occurred then," said John Curran, senior vice president at CanadianForex.

The Canadian dollar ended the session trading at C$0.9857 to the greenback, or $1.0145, stronger than Friday's North American session close at C$0.9871, or $1.0131.

It traded in a tight 32 basis point range after moving three-quarters of a cent on Friday.

Canada impressed investors with robust hiring data on Friday, while U.S. employers kept up a steady pace of hiring and manufacturing surveys pointed to growing activity in China.

Curran pointed to European data and central bank decisions due mid-week as the next test for the Canadian currency, while corporate earnings season is also about to kick off.

The currency also held up against the euro at around C$1.29 as investors bet the European Central Bank will refrain from cutting interest rates later this week.

Tiff Macklem, a senior Bank of Canada official widely tipped to replace the departing Governor Mark Carney as head of the central bank, may hint at a future monetary policy when he speaks about economic growth at a university on Thursday.

"If he comes out with a hawkish stance, that will lend itself to Canadian dollar strength," Curran said.

The two-year Canadian bond was flat to yield 1.204 percent and the benchmark 10-year bond slipped 8 Canadian cents to yield 1.946 percent.

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