CANADA FX DEBT-C$ ends little changed as Fed-driven rally cools

Tue Sep 18, 2012 5:19pm EDT

* C$ at C$0.9746 vs US$ or $1.0261
    * Bond prices higher across the curve
    * TD pushes back Canada rate hike expectations to July 2013

    By Solarina Ho
    TORONTO, Sept 18 (Reuters) - The Canadian dollar eked out
minor gains against the U.S. currency on Tuesday while trading
within a narrow range, as some of the optimism created by the
U.S. Federal Reserve's aggressive policy action last week
started to fade.
    But the Canadian dollar outperformed most other major
currencies as it tracked a broader recovery in the greenback
against peers like the euro and yen. 
    "When you get these pure (U.S. dollar) moves, CAD tends to
get pulled along," said Adam Cole, global head of currency
strategy at RBC Capital Markets in London.
    The Canadian dollar finished the North American
session at C$0.9746 versus its U.S. counterpart, or $1.0261,
modestly firmer than Monday's finish at C$0.9753, or $1.0253.   
    "It's very sleepy," said David Bradley, director of foreign
exchange trading at Scotiabank. "I think regardless of what the
data turns out to be for the balance of the week, I think
USD/CAD is going to be relatively range-bound."
    The absence of new catalysts such as domestic economic data
kept the currency trading within a narrow range of C$0.9765 to
C$0.9730.
    "I'm not really too surprised it's back in the mid-C$0.97s,"
said Bradley, but added, "I still think the overall interest is
to buy Canadian dollars, so I would be surprised if we get a
push back through C$0.98 on the top side of USD/CAD this week."
    After an eight percent rally from June lows, analysts said a
near-term pullback was to be expected, particularly as market
focus turned to concerns about slowing global growth.
  
    
    BONDS HIGHER
    The benefit of the Bank of Canada's hawkish stance was also
expected to be offset by soft data.
    Economists at TD Securities on Tuesday revised their outlook
for the next Bank of Canada move on interest rates. They pushed
back expectations for the first quarter-point hike to July 2013,
from March 2013.
    "While Federal Reserve policy is important in the calculus
surrounding the Bank of Canada, the major determinant for 
Canadian monetary policy will be the outlook for domestic
growth," the investment dealer said in a noted to clients.
    "The second half of the year is expected to be
disappointing, but we still expect trend growth in 2013."
    Most Canadian primary dealers expect the Bank of Canada to
hold interest rates steady until late-2013 or later. 
    Canadian government bond prices edged higher across the
curve. The two-year bond was up 2.5 Canadian cents to
yield 1.182 percent, while the benchmark 10-year bond
 added 26 Canadian cents, yielding 1.918 percent.
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