The Canadian dollar grabbed its share of the headlines yesterday as it rose to a fresh 12-year high against the US dollar.
With the greenback little changed against most major currencies in the wake of the weekend's flurry of political gatherings, and trading muted ahead of public holidays in Japan on Tuesday and the US on Thursday, strong moves were limited.
But the Canadian dollar firmed 0.7 per cent to C$1.1851 against the greenback after David Dodge, the governor of the Bank of Canada, said the loonie appreciation against its southern counterpart was “not inappropriate”, and that he only favoured currency intervention in “exceptional circumstances”.
The comments came just days after speculation that the BoC was growing more concerned about the strength of the loonie, which has risen 15.2 per cent against the greenback since May.
“These comments are significant, as over the weekend Dodge had appeared to sound more concerned about Canadian dollar strength saying it would be monitored closely,” said Aziz McMahon, currency strategist at ABN Amro.
Mr Dodge alluded to the fact that domestic demand is strengthening in his rationale, and further evidence of this emerged on Monday with data showing Canadian retail sales (excluding autos) hit a record level in September, rising a more than expected 0.6 per cent during the month.
This reassured the market that the BoC was likely to raise interest rates to 2.75 per cent on December 7, at worst maintaining the yield differential over the US dollar.
Elsewhere sterling touched a fresh 11-month low of ?0.7037 against the euro in the aftermath of the latest soft UK housing market report.
Property website Rightmove said prices slid 1.7 per cent in November, just a day after reports emerged that Barclays Bank sees house prices falling 20 per cent over the next three years. The talk did nothing to dispel the growing conclusion that UK interest rates have peaked at 4.75 per cent, and are likely to start falling during 2005.
However sterling weakness proved short-lived, with the pound rallying to end the day just 0.1 per cent weaker at ?0.7018 against the euro and little changed at $1.8573 against the US dollar.
The Polish zloty firmed 0.5 per cent to a 20-month high of 4.2098 zlotys to the euro, with the Czech koruna within a whisker of a near-two-year high at Kcs31.03 to the euro and the Slovak koruna within a fraction of its all-time high against the euro of Kcs39.213.
Elisabeth Gruie, currency strategist at BNP Paribas, attributed the strength to the continuing appeal of emerging markets, as well as continuing carry trades, given the relatively high interest rates across much of eastern Europe. //www.news.ft.com