CANADA FX DEBT-C$ softens, with eye on Bank of Canada decision

Mon Jul 15, 2013 9:21am EDT

* C$ at C$1.0407 vs the US$, or 96.09 U.S. cents
    * Traders waiting on Wednesday's central bank decision
    * Bank of Canada expected to maintain hawkish bias
    * Bond prices mixed

    By Andrea Hopkins
    TORONTO, July 15 (Reuters) - The Canadian dollar was little
changed against the U.S. dollar in early trade on Monday as a
relief rally spurred by Chinese growth faded and investors
anticipated a move by the Bank of Canada to downgrade Canada's
economic growth outlook.
    China's economic growth cooled to 7.5 percent in the second
quarter from a year ago as expected, but was better than feared,
while other figures showed a healthy rise in retail sales and a
minor undershoot of forecasts in industrial output.
 
    Comments by Beijing last week had led markets to think the
numbers might have been weaker, so the outcome brought relief.  
Commodities and commodity-linked currencies like the Canadian
dollar initially drove higher, but like stocks saw some
profit-taking following a strong week last week. 
    While the Canadian dollar remains stronger than the depths
plumbed last week, one trader said he expects the currency to
soften again this week as the Bank of Canada leaves rates
unchanged but tamps down 2014 growth forecasts in the Monetary
Policy Report on Wednesday.
    "This generalized U.S. dollar bid - and the fact that the
relief rally after the Chinese GDP data has also proved
relatively temporary for the commodity currencies - has
encouraged a reasonable bid tone to dollar-CAD at the start of
this week," said Jeremy Stretch, head of foreign exchange
strategy at CIBC World Markets in London.
    "We're very mindful the MPR will mostly likely downgrade
growth for next year in Canada, which I think is consistent with
the modest topside potential and probably a move back towards
C$1.05 and perhaps as high as C$1.06 towards the end of the
week."
    The Bank of Canada is expected to keep its tightening bias
in the first interest rate decision under new Governor Stephen
Poloz, but slow growth and low inflation means a rate increase
is not seen until the fourth quarter of 2014, a Reuters poll
showed.
    All 38 economists polled by Reuters expect the central bank
to leave its benchmark rate unchanged at 1 percent on July 17,
its next scheduled rate decision. And the majority of
respondents said the Bank of Canada will stand pat until late
next year at the earliest. 
    At 8:40 a.m. (1240 GMT), the Canadian dollar was
trading at C$1.0407 versus the U.S. dollar, or 96.09 U.S. cents,
little changed from Friday's North American trading session
close at C$1.0396 versus the greenback, or 96.19 U.S. cents.
    Prices for Canadian government debt were mixed, with the
two-year bond losing 1 Canadian cent to yield 1.142
percent. The benchmark 10-year bond fell 12 Canadian
cents, yielding 2.449 percent.
FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.