CANADA FX DEBT-C$ slightly stronger, all eyes on Bank of Canada

Wed Jan 23, 2013 8:30am EST

* C$ at C$0.9918 versus US$, or $1.0083
    * All eyes on Bank of Canada rate decision, outlook
    * Central bank expected to trim its GDP growth forecasts
    * Weaker forecast may weigh on rate expectations, C$

    By Alastair Sharp
    TORONTO, Jan 23 (Reuters) - The Canadian dollar strengthened
slightly in subdued trade on Wednesday ahead of a Bank of Canada
policy decision and economic outlook that will be closely
watched for hints of a shift in monetary stance. 
    The central bank is broadly expected to hold rates steady as
it balances a fragile domestic economy and cooling housing
market with an anticipated rebound in global growth.
    At the same time, the bank will update its economic
predictions, with most watchers expecting a scaling back of what
appears to have been overly optimistic forecasting.
    "There is obviously a degree of reticence to do too much
ahead of the Bank," said Jeremy Stretch, head of foreign
exchange strategy at CIBC World Markets in London.
    At 8:14 a.m. (1314 GMT) the Canadian dollar was
trading at C$0.9918 to the greenback, or $1.0083, compared with
C$0.9927, or $1.0074, at Tuesday's North American close.
    The Canadian central bank had previously predicted growth of
2.3 percent for 2013, which Stretch called "a rather ambitious
target".
    "I think we will see that growth number revised lower, it is
a question of how far it's revised lower," he said. "The lower
the growth number, the greater the time horizon required to
close the output gap and that has implications for the
tightening bias," he said.
    Unlike most of its developed economy peers, Canada's central
bank has indicated it will look to raise interest rates once
conditions allow, which economists has interpreted to mean late
this year or early in 2014. 
    Helping its case, the three most recent data imprints for
the domestic economy have come in stronger than expected.
    The price of two-year bonds was up 1 Canadian
cent to yield 1.169 percent, while the benchmark 10-year bond
 rose 7 Canadian cents to yield 1.905 percent.
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