TORONTO: The Canadian dollar firmed a third of a cent against the US dollar on Thursday, touching its strongest level in nearly two months, lifted by signs of a growing Chinese recovery and Japan's aggressive monetary policy easing.
The strength came early in the session and mostly held through the day, following the lead of fellow commodity-linked, and higher-yielding, currencies in Australia and New Zealand.
"It's just a little bit of catch-up on the Canadian dollar front. Aussie and Kiwi had been bid up quite nicely yesterday," said Matt Perrier, managing director of foreign exchange sales at BMO Capital Markets.
It has been a case of gradual strengthening for the loonie, as Canada's currency is colloquially known, after it fell earlier in the year on a string of weak economic data that forced the country's central bank to soften its rate-hike bias.
"Since we've been coming off the weakest points for the Canadian dollar back in February, we've been slowly notching in lower highs on any Canadian dollar weakness," Perrier said.
Assets that benefit from stronger growth, which typically include the loonie, have also rallied since the Bank of Japan unveiled a radical stimulus program a week ago.
In addition to the Canadian dollar, the MSCI's world equity index has hit levels last seen in June 2008. Market sentiment has also taken the S&P 500 index of US stocks to a record high.
More encouragement came on Thursday from figures that showed the number of Americans filing new unemployment benefit claims fell more than expected last week, easing fears of a marked deterioration in US labor market conditions after a surprise stumble in job growth in March.
The Canadian dollar's latest gains also have been helped by evidence of an economic recovery in China, notably signs of growing domestic demand and easier credit, and by indications from the European Central Bank last week that it may cut rates.
"It's basically a risk-asset move...you're seeing equity (markets) firmer as well. And there has been good correlation between the Canadian dollar and the risk-on move," said Mark Chandler, head of Canadian fixed income and currency strategy at Royal Bank of Canada.
Chandler noted Canada's fellow commodities-linked currency, the Australian dollar, held on to gains against the US dollar despite a dismal Australian employment report.
The Canadian dollar ended the session at C$1.0107 versus the US dollar, or 98.94 US cents. This was stronger than Wednesday's North American finish of C$1.0144, or 98.58 US cents.
Earlier in the session, the currency touched C$1.0084, its strongest level against the greenback since Feb. 18.
The Canadian dollar's performance was mixed against other currencies. It was outperforming the Australian dollar and Japanese yen, but weakened versus the New Zealand dollar, where it touched another fresh low dating back to mid-2005.
The price of Canadian government debt was higher across the curve, with the two-year bond adding more than 2 Canadian cents to yield 0.982 percent and the benchmark 10-year bond rising 17 Canadian cents to yield 1.786 percent.
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