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CANADA FX DEBT-C$ closes stronger, near US$ parity on Fed, Greece

28 January, 2012 - Reuters
  • C$ ends at C$1.0007 to US$, or 99.93 U.S. cents
  • Greek debt deal hopes, Fed boost C$
  • Bond prices mixed

By Jon Cook

TORONTO, Jan 27 (Reuters) - Canada's dollar firmed against the greenback on Friday and was up more than 1 percent for the week on the back of the U.S. Federal Reserve's bold moves to keep the economic recovery on track and hopes of a Greek debt swap deal.

The Canadian currency has hovered around parity since the U.S. Federal Reserve said earlier in the week it would likely keep interest rates near zero until late 2014 and left the door open to further stimulus measures.

"It's an excruciatingly long period of time and it highlights just how weak the fundamentals are," said Camilla Sutton, chief currency strategist at Scotia Capital.

The Fed's concern about the U.S. recovery was underscored by U.S. data on Friday that showed Canada's largest trading partner grew at a slower pace in the last quarter than economists had predicted.

"The U.S. dollar is broadly lower so Canada has benefited on the back of that and we're closing the week very close to that psychologically important parity level," said Sutton.

The Canadian currency finished at C$1.0007 to the U.S. dollar, or 99.93 U.S. cents, capping its biggest weekly rise this year.

It closed at C$1.0017 on Thursday, the same day it briefly hit C$0.9981 to the U.S. dollar, its strongest level since Nov. 1.

Monthly re-balancing flows from asset managers helped support the Canadian currency, but it experienced some headwinds from risk-averse investors worried about a more sluggish U.S. economy, said Shane Enright, executive director of foreign exchange sales at CIBC World Markets.

"Canada feels like it wants to go stronger," added Enright.

The trading range for the Canadian dollar has broadened slightly this week, but analysts still see a relatively small window between C$0.9970 to C$1.0050 to the U.S. dollar.

While the U.S. GDP data initially drove down the Canadian dollar, Europe remained the focus for investors.

"The bigger risks at the moment are relating to Europe," said Greg Moore, a foreign exchange strategist at TD Securities.

On Friday, fears over Europe's fiscal crisis eased slightly after week-long negotiations to restructure Greece's unwieldy debt commitments appeared within reach. Athens needs a deal quickly to avert an unruly default, which could wreak havoc across financial markets.

The positive Greek vibe endured despite yet another euro zone downgrade on Friday, as Fitch Ratings cut credit ratings for six countries including Belgium, Italy and Spain.

"Most market participants expect there to be some final details available before the EU (European Union) summit Monday," said Sutton. "There's risk there, but we appear to be discounting that risk."

Canadian government bond prices were mostly higher, with the two-year bond up a Canadian cent to yield 1 percent. The 10-year bond rose 22 Canadian cents to yield 1.991 percent.

In a Reuters poll released on Friday, analysts predicted Canadian bond yields would rise over the next 12 months as risk appetite improves.

The yield on two-year bonds was seen rising from 1 percent at the end of April to 1.49 percent a year from now. Canadian 10-year yields were forecast to rise from a median of 2.17 percent at the end April to 2.7 percent a year from now.

(Editing by Jeffrey Hodgson)

Copyright Thomson Reuters 2012. All rights reserved.

The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.

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