WRAPUP 3-Canadian business mood upbeat; housing starts dip

* Businesses upbeat on hiring, expansion; eye inflation

* March housing starts lower, Jan, Feb revised up

* Flaherty says C$ rise “relatively orderly”

* Canadian dollar pushes towards parity
(Adds background)

By Ka Yan Ng

TORONTO, April 12 (BestGrowthStock) – Economy recovery in Canada is
staying on track, reports on Monday showed, with businesses
upbeat about hiring intentions and expansion, and the
three-month trend for housing starts displaying strength.

The Canadian dollar headed back towards parity with the
greenback after a pair of surveys done by the Bank of Canada
showed the optimistic business mood, and after Finance Minister
Jim Flaherty repeated that the recent rise of the currency has
been “relatively orderly”. [ID:nN12123410]

In the Bank of Canada surveys, businesses said they are
preparing to expand and to hire more workers. [ID:nN12187334]
Also, twice as many of them now see inflation at the high end
of the central bank’s target range of 1-3 percent than did so
late last year.

“Responses to the spring survey provide further evidence
that the recovery is taking hold,” the bank said.

In a separate survey, senior loan officers at the country’s
major banks told the Bank of Canada that business lending
conditions had eased in the first quarter, both in terms of
pricing and availability.

The survey results focused renewed interest on the Canadian
dollar, pulling it to a North American session high of C$1.0011
to the U.S. dollar, or 99.89 U.S. cents, about a third of a
cent higher from before the surveys were published and Flaherty
made his comments. [CAD/]

The survey results may also tilt the balance slightly
toward an earlier than expected interest rate hike by the Bank
of Canada, although analysts are divided on that possibility.

Scotia Capital economist Derek Holt said the central bank
is likely to “look favorably” on the pair of surveys. Scotia
recently moved up its forecast for the bank’s first rate hike
to June 1.

But TD Securities continues to expect the Bank of Canada to
keep rates unchanged until July.

“Given that these reports tend to form an integral part in
the Bank of Canada’s interest rate deliberation process, we
expect them to go some way in confirming in the minds of the
bank that the Canadian economic recovery is gaining traction,”
said Millan Mulraine, senior Canada macro strategist at TD
Securities.

“The rise in the inflation expectation is also consistent
with the view of a strong recovery, but it is not entirely out
of line with historical levels.”

Yields on overnight index swaps, which trade based on
expectations for the central bank’s key policy rate, edged
higher after the surveys were released, suggesting the market
sees interest rate hikes as slightly more likely. (BOCWATCH: )

The bank has kept its overnight rate at a historic low of
0.25 percent since April 2009, and pledged to hold it at that
level until the end of June, unless inflation strays off the
desired path.

The bank targets 2 percent inflation in the medium term.
Core inflation reached 2.1 percent in February and those price
pressures plus other evidence of strong growth have fueled
speculation of an early rate hike.

MARCH HOUSING STARTS DIP

Figures released earlier on Monday showed Canadian housing
starts unexpectedly dipped 1.5 percent in March to 197,300
units from 200,400 units in February, largely because of a
decline in the volatile multi-dwelling group. [ID:nN12181613]

But the figures for the two previous months were revised
higher, suggesting the residential housing sector remains a
positive factor in the country’s economic recovery.

“This was no weak report,” said Robert Kavcic, an economist
at BMO Capital Markets.

“Single-family starts hit a four-year high, and February’s
total was revised up to 200,400 to mark the first month above
the 200,000 mark since October 2008,” he said.

Kavcic said first-quarter housing starts rose at a slower
pace than in the previous two quarters, rising more than 8
percent, compared with gains of about 15 percent in the fourth
quarter and 22 percent in the third.
(Additional reporting by Louise Egan in Ottawa, Jennifer Kwan
in Toronto, Rod Nickel in Winnipeg; editing by Peter Galloway
and Rob Wilson)

WRAPUP 3-Canadian business mood upbeat; housing starts dip