* C$ at C$0.9902 versus the US$, or or $1.0099
* Bank of Canada largely holds to hawkish line on rates
* Global weakness offsets C$ gains vs US$
By Alastair Sharp
TORONTO, Oct 23 The Canadian dollar sharply
strengthened versus the U.S. currency on Tuesday after the Bank
of Canada largely retained its hawkish view that interest rates
should be raised over time.
The currency had been weakening ever since the governor of
the central bank had omitted reference to a tightening bias in a
speech a week ago, but reversed course after the bank only
slightly toned down its rate hike bias and flagged household
debt as a concern.
"Obviously they kept the hawkish bias, which I think took
the markets by surprise, so we've had a rally in the Canadian
dollar," said Camilla Sutton, chief currency strategist at
The currency traded as strong as C$0.9902 to the
greenback, or $1.0099, after the central bank statement,
compared with C$0.9970, or $1.0030 just before. It had closed
Monday's North American session at C$0.9926, or $1.0075.
The move was partly muted as investors globally have flocked
to the safe haven U.S. dollar after lacklustre corporate
earnings and a downgrade of Spanish regions re-ignited fears
about the health of the world economy.
"Given the fact that we've got a pretty sour mood in the
global markets today, that's a pretty important move by the
Canadian dollar," said Doug Porter, deputy chief economist at
BMO Capital Markets.
The Canadian currency was bolstered against a string of
major currencies, including the euro, the British pound, the
Swiss franc and the Australian dollar.
The Bank of Canada news also played havoc with the price of
shorter duration government debt, while longer-term bonds seems
inured by broader caution.
The two-year bond was off 8 Canadian cents to
yield 1.136 percent, while the benchmark 10-year bond
rose 18 Canadian cents to yield 1.853 percent.
"The long end is still being supported by a bit of weakness
in other financial markets today more broadly, but the short end
got walloped by this," BMO's Porter said.