CANADA FX DEBT-C$ weakens after Poloz named to head Bank of Canada

Thu May 2, 2013 5:38pm EDT

* C$ at C$1.0083 to the US$, or 99.18 U.S. cents

* Stephen Poloz named as next governor of Bank of Canada

* Poloz had been seen as 2nd most likely candidate

* Surprise hits currency, but policy seen steady

By Alastair Sharp

TORONTO, May 2 (Reuters) - The Canadian dollar weakened late on Thursday against its U.S. counterpart after the Canadian government surprised investors by naming Stephen Poloz, head of the country's export credit agency, as the new governor of the central bank.

Poloz, who spent 14 years at the Bank of Canada earlier in his career, had been widely seen as the second most likely pick, with Bank of Canada senior deputy Tiff Macklem the favored candidate. Poloz has been at Export Development Canada since 1999 and its president since 2010.

"At the very least, there's a little bit of uncertainty over policy which could lead to a little bit of a chipping away at the currency," said Doug Porter, chief economist at BMO Capital Markets. "We have seen the currency soften ever so slightly in the minutes since the announcement."

The loonie, as Canada's currency is colloquially known, ended the session at C$1.0083, or 99.18 U.S. cents, but later weakened as far as C$1.0111. It closed at C$1.0081, or 99.20 U.S. cents on Wednesday.

"In terms of the impact on monetary policy, we don't think this should alter the outlook all too much," said Mazen Issa, macro strategist at TD Securities. "Perhaps coming with a background from EDC, some may be led to believe that at the end of the day maybe he will take a slightly more dovish tone."

In a press conference following the announcement, Poloz said the recovery in the Canadian economy has not been as vigorous as might have been anticipated and needs to be nurtured.

Analysts said they did not necessarily expect a big change in central bank thinking under Poloz's leadership.

Prior to the announcement, the currency had weakened slightly as gains on the back of a surprise trade surplus for the domestic economy were offset by greenback appreciation after a sharp fall in U.S. jobless claims.

The currency had firmed to C$1.0060 to the greenback, or 99.40 U.S. cents, after Statistics Canada said growing exports led to a C$24 million surplus in March.

But the greenback also gained, pushing the loonie back to around C$1.0071, or 99.30 U.S cents, as Americans filed the fewest new claims for unemployment benefits last week in the last five years.

The North American currencies both gained versus the euro after the European Central Bank cut interest rates for the first time in 10 months, driven to act by an economy wallowing in recession and freed to do so by sharply falling inflation.

Prices for Canadian government debt were mixed, with the two-year bond off half a Canadian cent to yield 0.918 percent and the benchmark 10-year bond rising 10 Canadian cents to yield 1.673 percent.

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