CANADA FX DEBT-C$ weaker as eyes turn to Bank of Canada

Mon Jul 15, 2013 4:54pm EDT

* C$ at C$1.0415 vs the US$, or 96.02 U.S. cents
    * Traders waiting on Wednesday's central bank decision
    * Bank of Canada expected to hold rates; outlook in play
    * Bond prices mixed

    By Alastair Sharp
    TORONTO, July 15 (Reuters) - The Canadian dollar weakened
against the U.S. dollar on Monday as a relief rally spurred by
Chinese growth faded and investors geared up for a possible
change in tone from the Bank of Canada, which may also downgrade
Canada's economic growth outlook.
    The Bank of Canada is due to announce its first interest
rate decision under new Governor Stephen Poloz and also release
its quarterly Monetary Policy Report (MPR) on Wednesday,
followed by a news conference with the new governor.
    "The market is a little nervous that he is going to be a
little more dovish than (predecessor Mark) Carney was," said
David Bradley, director of foreign exchange trading at
Scotiabank.
    The Canadian dollar ended the session trading at
C$1.0415 versus the U.S. dollar, or 96.02 U.S. cents, weaker
than Friday's North American close at C$1.0396, or 96.19 U.S.
cents.
    China's economic growth cooled to 7.5 percent in the second
quarter from a year ago, but the number 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 showing 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.
    "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.
    "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 stick to its tightening
bias, 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. And the
majority of respondents said the Bank of Canada will stand pat
until late next year at the earliest. 
    Prices for Canadian government debt were higher, with the
two-year bond adding 1 Canadian cent to yield 1.132
percent. The benchmark 10-year bond gained 17
Canadian cents, yielding 2.414 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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