CANADA FX DEBT-C$ slips in quiet holiday trading; BoC in focus

Mon May 27, 2013 5:03pm EDT

* C$ at C$1.0337 vs US$, or 96.74 U.S. cents
    * U.S. and UK markets closed for public holidays
    * Bank of Canada expected to keep interest rate unchanged on
Wednesday
    * Bond prices mostly lower

    By Solarina Ho
    TORONTO, May 27 (Reuters) - The Canadian dollar softened on
Monday after a mostly volatile previous week following debate on
when the Federal Reserve will pull back its stimulus measures,
with investors turning their attention to the Bank of Canada's
next interest rate move on Wednesday.
    Trading was particularly quiet with the United States and
Britain both closed for public holidays.
    "It's been an exceptionally quiet day. We haven't seen a lot
of movement really - a slight weakness in the Canadian dollar,
but it's been very tight ranges for all the currencies," said
Camilla Sutton, chief currency strategist at Scotiabank.
    The Canadian dollar finished Monday's session at  
C$1.0337 versus the U.S. dollar, or 96.74 U.S. cents, slightly
weaker than Friday's finish at C$1.0321, or 96.89 U.S. cents. 
    Canada's dollar, which was mostly underperforming other
major currencies, was trading narrowly, between C$1.0301 and   
C$1.0344 on Monday.
    With little news to drive the currency, attention is focused
on the Bank of Canada, which will announce its next scheduled
interest rate decision on Wednesday. It will be outgoing
governor Mark Carney's final policy decision before he takes the
helm at the Bank of England. Stephen Poloz is his successor.
    The central bank is unanimously expected to keep its
benchmark rate unchanged at 1 percent, according to a Reuters
poll of 34 global economists. 
    "They will still continue to maintain their tightening bias,
because at this stage Canada's (economy) weakening off on its
own. I don't think losing the bias to tighten is something
they'd be wanting to do at this stage," said Don Mikolich,
executive director, foreign exchange sales at CIBC World
Markets.
    "The debate now is almost, 'Is Canada or the U.S. going to
hike first?' when it's always been assumed it'd be here."
    Forecasters are expecting the bank to next hike interest
rates in the final quarter of 2014, which is not far off from
the Fed's expectations it will begin hiking around 2015.
    Mikolich said there are no surprises expected on Wednesday,
but that the market will likely parse over any analysis on
growth and inflation projections.
    Canada's quarterly and monthly GDP figures will be released
on Friday. Sutton believes the Canadian dollar has already
priced in a significant amount of negative news and that a big
surprise would only come on stronger-than-expected data.
    Prices for Canadian government debt were mostly lower,
particularly for longer-term bonds, with the two-year bond
 shedding 2.5 Canadian cents to yield 1.044 percent
and the benchmark 10-year bond falling 26 Canadian
cents to yield 1.981 percent.
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