The Canadian dollar hit a two-week high on Friday, boosted by hopes that Greece's lenders were nearing an agreement to release further aid to help the debt-stricken country and by a rise in German business morale. The international developments overshadowed Canadian data showing consumer prices rose a bit more than expected in October, but inflation remained well below the central bank's 2 percent target, suggesting interest rate hikes are still a long way off.
--- Currency breaks through week-long block
"It's, in many respects, the global macro developments that shape the landscape in the FX world, including the Canadian dollar," said Jack Spitz, managing director of foreign exchange at National Bank Financial. Greece's finance minister said the International Monetary Fund has relaxed its debt-cutting target for the heavily indebted country and only a 10 billion euro ($13 billion) gap remains to be filled for a vital aid instalment to be paid to Greece.
The Canadian dollar, along with shares and other riskier assets have been helped this week by optimism on Greece, hopes that US lawmakers can agree on a solution to avoid a fiscal crisis, and data showing an improving global economic outlook. The positive data included a German business survey that pointed to rising corporate optimism in Europe's biggest economy.
The Canadian currency ended at C$0.99 20 to the greenback, or $1.008 1, up from its close of C$0.9972, or $1.0028, at the North American close on Thursday. It gained 0.9 percent on the week. Its rise accelerated after it breached C$0.9955, the lower end of a tight range the currency had moved in all week.
National Bank's Spitz said the currency could get a further boost soon if the federal government gives the green light to two pending foreign acquisitions of Canadian resource companies; a $15.1 billion take-over bid by China's CNOOC for oil and gas producer Nexen Inc and Petronas of Malaysia's C$5.2 billion bid for Progress Energy Resources.
"In the event that the federal government says that both acquisitions are of net benefit to Canada, there is likely to be some Canadian dollar buying because both are cash acquisitions," he said. The Canadian data showed year-on-year inflation in October held steady at 1.2 percent, unchanged from September but above the 1.1 percent forecast of market players. Core inflation, which strips out prices for gasoline and other volatile items, was unchanged at 1.3 percent. Market players had forecast 1.2 percent core inflation.
"What we have in Canada are inflation levels that are well-contained and even though we saw the headline ticked up slightly more than expected, core was fairly subdued," said Camilla Sutton, chief currency strategist at Scotiabank. "Taken as a whole, I don't think this makes any material change to expectations for the Bank of Canada."
Even so, overnight index swaps, which trade based on expectations for the central bank's key policy rate, showed that traders increased their small bets on a rate hike in late 2013 slightly after the data was released. Higher interest rates tend to support currencies by attracting international capital flows. Canada's two-year bond was off 2 Canadian cents to yield 1.12 1 percent, while the benchmark 10-year bond traded down 8 cents to yield 1.783 percent.