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Canada dollar up despite hawkish Greenspan remarks

TORONTO: The Canadian dollar ended moderately higher on Thursday after shrugging off some early weakness inflicted by hawkish congressional testimony from U.S. Federal Reserve Chairman Alan Greenspan.

The Canadian dollar closed at C$1.4510 (68.92 U.S. cents) on Thursday after closing at C$1.4533 (68.81 U.S. cents) in the previous session.

The currency slipped to the C$1.4540 area after Greenspan delivered his semi-annual Humphrey-Hawkins testimony. Greenspan's remarks were widely interpreted as presaging an aggressive approach to interest-rate tightening by the U.S. central bank.

"The FOMC (Federal Open Market Committee) will have to stay alert for signs that real interest rates have not yet risen enough to bring the growth of demand into line with that of potential supply, even should the acceleration in productivity continue," Greenspan told the Banking Committee of the U.S. House of Representatives in a strongly worded statement.

"There was a little bit of (Canadian dollar) weakness on it -- they were probably hawkish comments," said Reid Farrill, executive director of foreign exchange at CIBC World Markets Inc.

But the damage to the Canadian unit was limited by the widespread feeling that the Bank of Canada will likely match the Fed's next policy move, he added.

"For the time being, there's a feeling the Bank and the Fed will be in step. We'll see after the next rate hike. The ball will be back in Canada's court," Farrill said.

The impact of Greenspan's testimony was also offset by the softer-than-expected U.S. producer price index data released earlier in the session, he said.

The producer price index remained flat in January, defying the 0.2 percent increase expected by analysts.

"That's going to cool down the U.S. dollar a little bit, too," Farrill said.

The Canadian unit has some potential to appreciate from current levels, he added. "I think Canada can break higher. I'd still be relatively bullish on Canada."

While the fundamentals remain positive for the currency, the lack of fresh incentives to buy the unit can sometimes result in a wave of selling, he added.

"From time to time, as we saw this week, traders will get bored with it and sell Canada," Farrill said.

Trading flows in the currency were described as moderate on Thursday.

In cross-trading against major currencies, the Canadian dollar was at 76.25 yen and at C$1.4319 against the euro. The Canadian dollar was at A$1.0901 against the Australian dollar.-Reuters