CANADA FX DEBT-C$ slips as nervous investors keep heads down

Wed Jun 12, 2013 4:53pm EDT

* C$ at C$1.0212 to US$, or 97.92 U.S. cents
    * Investors wary that central banks might withdraw stimulus
    * Corporate buying of loonie mutes greenback gains

    By Alastair Sharp
    TORONTO, June 12 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Wednesday even as the greenback
itself fell broadly on market anxiety that major central banks
might tone down their stimulus programs.
    Signals from central banks, in particular the U.S. Federal
Reserve and the Bank of Japan, that stimulus programs might be
scaled back have pressured global equities, bonds and the U.S.
dollar this week. 
    "Central banks are still ruling the day, and what you're
seeing here is growing pains in reaction to the eventual
drawdown of Fed stimulus, or global stimulus, that's been
happening for the last four years," said John Curran, senior
vice president at CanadianForex.
    "We are following the general trend of the market movement,
but to a lesser degree," he said, pointing to strong corporate
buying of Canadian dollars that capped greenback strength
against the Canadian currency. 
    "At those levels of C$1.03-C$1.04 there are a lot of people
happy to sell U.S. dollars," he said.
    The Canadian dollar ended the session at C$1.0212
to the greenback, or 97.92 U.S. cents, compared with C$1.0189,
or 98.15 U.S. cents, at Tuesday's North American close.
    While fears of the end of stimulus have gripped markets, any
economic recovery in the United States that would allow such
moves would be broadly positive for the Canadian dollar in the
longer term.
    "There is a positive implication from the U.S. recovery
getting a bit more traction, but I think the proof will have to
be in the pudding for Canadian data," said Greg Moore, a
currency strategist at TD Securities.
    Canada produced a blockbuster jobs report last Friday that
supported notions that the Bank of Canada may move more quickly
than expected to hike its benchmark interest rate, which would
be positive for the Canadian currency. 
    Overnight index swaps, which trade based on expectations for
the central bank's key policy rate, have risen recently as
economic data has led some investors to bet on a rate hike
sooner than previously expected. 
    A Reuters poll on May 23 showed most economists don't expect
the Bank of Canada to hike rates until the fourth quarter of
2014 due to tepid economic growth and low inflation. 
    TD's Moore warned against reading too much into the strong
showing from Friday's jobs figures, which have historically
swung erratically and have a wide margin of error.
 
    "It is risky to put so much weight in such a volatile data
series," he said.
    He warned the currency could pop back up to C$1.03 in a
matter of days if the Fed signals the stimulus spigot will be
tightened. 
    Prices for Canadian government debt fell across the curve.
The two-year bond was off 2 Canadian cents to yield
1.158 percent, while the benchmark 10-year bond fell
24 Canadian cents to yield 2.205 percent.
FILED UNDER:
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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