CANADA FX DEBT-C$ strengthens on housing data, drop in U.S. yields

Wed May 14, 2014 4:45pm EDT

* Canadian dollar at C$1.0882 or 91.89 U.S. cents
    * Housing data, ECB rate cut prospects bolster loonie
    * Bond prices mostly higher

 (Updates to close)
    By Andrea Hopkins
    TORONTO, May 14 (Reuters) - The Canadian dollar strengthened
against the greenback on Wednesday as solid housing data
bolstered the currency and prospects for a European Central Bank
rate cut sent U.S. bond yields down, dampening the U.S. dollar.
    Canadian resale home prices rose in April and accelerated
year-over-year, but the start of the hotly anticipated spring
selling season appeared weaker than usual, the Teranet-National
Bank Composite House Price Index showed on
Wednesday. 
    The numbers confirmed views that the market would bounce
back after a hard winter, and economists largely expect housing
sales and prices to slow to a steady and sustainable pace or
so-called "soft landing", defying year-ago predictions for a
U.S.-style crash.
    The Canadian dollar also benefited from moves in global bond
markets, as benchmark government bond yields in the United
States and Germany fell after sources told Reuters a ECB rate
cut next month is "more or less a done deal." 
    Combined with disappointing U.S. retail numbers on Tuesday,
the probable ECB rate cut means Canada could become the first
out of the gate on interest rate increases next year, a prospect
that bolsters the currency, which had sold off in recent months.
    "The main risk for Canada was a correction in housing and
that looks extremely unlikely at this point," said Adam Button,
currency analyst at ForexLive in Montreal.
    "The Fed is looking less likely to hike rates, and the big
theme this year was that the Fed was going to hike before the
Bank of Canada, and that is really up in the air at the moment,"
Button said.
    The Canadian dollar ended the North American
session at C$1.0882 to the U.S. dollar, or 91.89 U.S. cents,
stronger than Tuesday's close of C$1.0910, or 91.66 U.S. cents.
    "The broad theme has been of U.S. dollar weakness coming
from the bond market, and a massive rally in bonds as
expectations for central bank easing get pushed out. Canada has
been on the periphery of that," Button said.
    The 10-year Treasury note's yield fell to 2.53
percent, the lowest since October. UK yields also fell after the
Bank of England said it was in no hurry to raise rates, and
10-year Bund yields hit a one-year low of 1.37 percent
.
    Bonds rallied even as U.S. wholesale prices increased 0.6
percent in April, the most in 1-1/2 years, a sign inflation
pressures may be creeping up. 
    Canadian government bond prices were mostly higher across
the maturity curve, with the two-year rising 3.7
Canadian cents to yield 1.044 percent and the benchmark 10-year
 gaining 61 Canadian cents to yield 2.290 percent.

 (Reporting by Andrea Hopkins; Editing by Meredith Mazzilli)
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