Thu Jun 30, 2011 5:16pm EDT

* C$ firms to C$0.9645 to the U.S. dollar, or $1.0368

* Hits strongest point since May 13

* Relief over Greek debt improves risk appetite

* Better-than-expected Canadian data supports

* Bond prices lower across curve

By Trish Nixon

TORONTO, June 30 (Reuters) – Canada’s dollar strengthened
to a near seven-week high against the greenback on Thursday,
boosted by a surge in commodity prices, easing of Greece’s debt
woes and slightly better-than-expected domestic economic data.

The currency rose for a fourth day as world stocks and the
euro rallied after Greece approved the final austerity measures
needed to secure international funding and avert imminent
bankruptcy. The news also boosted commodity prices.
[MKTS/GLOB]

“The external factors are the key here,” said Paul Ferley,
assistant chief economist at Royal Bank of Canada, pointing to
stronger commodity prices and developments in Europe.

“Those (euro zone debt) pressures seem to be easing, and
with that, the U.S. dollar is weakening after the
flight-to-safety we saw earlier on.”

Canada’s dollar was also supported by positive domestic
news, as economic data this week beat low expectations.

Gross domestic product (GDP) was unchanged in April
following 0.3 percent growth in March, Statistics Canada said
on Thursday. This was slightly better than the average forecast
of a 0.1 percent decline. [ID:nN1E75T0ER]

On Wednesday, data showed that inflation in Canada reached
its highest since May 2003, raising the prospect the central
bank could lift interest rates sooner than had been expected.
[ID:nN1E75S02V]

“We had much stronger-than-expected inflation data and now
stronger-than-expected GDP data, so both will factor into
expectations for the Bank of Canada, pulling forward the
expectations of the market,” said Camilla Sutton, chief
currency strategist at Scotia Capital.

Overnight index swaps, which trade based on expectations
for the key central bank rate, showed that traders on Thursday
priced in a slightly higher probability of rate hikes later
this year following the GDP data, though a full 25-basis-point
rate hike was not priced in until 2012. BOCWATCH

Higher interest rates tend to help a country’s currency
appreciate because they often attract international capital
flows.

The Canadian dollar ended the day at C$0.9645 to the U.S.
dollar, or $1.0368, up from C$0.9706 to the greenback, or
$1.0303. Earlier it hit a session high of C$0.9625, or $1.0390,
its strongest since May 13.

Using Bank of Canada closing rates, the currency ended the
quarter up about 0.5 percent against the U.S. currency and has
gained about 3.1 percent year-to-date.

Looking ahead, Ferley said the strength of the currency
would hinge on the sovereign debt struggles of Greece and the
euro zone, with the market looking for authorities to contain
the situation.

Longer term, he said the Canadian dollar will be buffeted
by North American economic data.

“A lot of the weakness we’ve been seeing in Canada and the
U.S. should ease and we should see stronger growth in the
second half of the year.”

“With that we may see a little bit more support for
commodity prices, and some support for the Canadian dollar.”

U.S. data on Thursday showed an unexpected jump in business
activity in the U.S. Midwest that helped quell fears about an
economic slowdown. [ID:nN9E7HG00J]

Canadian bond prices were lower across the curve as
investors sought riskier assets.

The two-year bond CA2YT=RR fell 7 Canadian cents to yield
1.6 percent, while the 10-year bond CA10YT=RR fell 33
Canadian cents to yield 3.13 percent.
(With additional reporting by Solarina Ho; Editing by Jeffrey
Hodgson)

Article source: http://www.reuters.com/article/2011/06/30/markets-canada-dollar-bonds-idUSN1E75T1WK20110630

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