TORONTO: The Canadian dollar rose sharply against its US counterpart on Thursday as equity markets extended gains on positive global growth signs and the hope of further stimulus action by central banks in the United States and Europe.
Global stocks were lifted overnight after China's bank lending trumped forecasts to spike to 1.01 trillion yuan ($160.1 billion) in March, a sign of fresh traction in Beijing's efforts to ease monetary policy and boost credit creation to support the cooling economy.
That helped underpin a move higher by commodity-linked currencies, which had weakened recently on signs of a cooling in the Chinese and US economies and an escalation of Europe's lingering debt crisis.
"That has helped give a more positive tone in the market," said Charles St-Arnaud, Canadian economist and currency strategist at Nomura Securities International in New York.
Both the Canadian and Australian dollars hit session highs against the greenback.
Around 1 p.m. (1700 GMT), the Canadian dollar was at C$0.9950 versus the US dollar, or $1.0050, up nearly a cent from Wednesday's close at C$1.0042 versus the US dollar, or 99.58 US cents. It was on track for its biggest daily increase since Nov. 30.
The currency shrugged off soft US data on Thursday that showed an unexpected rise in weekly jobless claims that came in the wake of last week's disappointing March employment report, suggesting a cooling in the labor market recovery.
However, St-Arnaud cautioned that the Easter holiday likely contributed to the spike in US claims.
The numbers followed comments by the Fed's influential vice-chair Janet Yellen on Wednesday who left the door open to further stimulus action if needed.
"If there's room for further quantitative easing that would be loosening of monetary policy, which is in turn negative for the US dollar," said Camilla Sutton, chief currency strategist at Scotia Capital.
Markets were also encouraged by European Central Bank Executive Board member Benoit Coeure who said further ECB bond buying is an option as concern mounted over rising bond yields in Italy and Spain.
Data from Canada on Thursday offered little direction for the Canadian dollar. A Statistics Canada report that revealed a far smaller than expected trade surplus was muted by a rise in February housing prices.
This week's strong housing data and last month's jump in employment have economists predicting the Bank of Canada may raise its key lending rate, above its current 1 percent level, well ahead of the Fed, which has said it intends to keep rates near zero until late 2014.
The median forecast in a Reuters poll of 40 economists and strategists shows the next interest rate hike will come in the second quarter of 2013.
"The main argument for the rate hike is centered around what's going on in the housing market and household debt in Canada," said St-Arnaud, who was the lone participant to predict a rate hike as soon as next quarter.
The high housing prices, combined with extremely low interest rates, have tempted Canadians to take on record levels of debt, and experts say an estimated 10 percent of borrowers could be in trouble if rates climbed to more normal levels.
"The bank could hike now mainly to force a change of behavior on the side of consumers," St-Arnaud added.
However, none of the respondents saw a change in rates at the next Bank of Canada policy announcement date, April 17.
Canadian government bond prices were mostly lower, with Canada's two-year bond edging down 1 Canadian cent to yield 1.230 percent. The 10-year bond fell 30 Canadian cents to yield 2.050 percent.
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