CANADA FX DEBT-C$ firms on global data as Bank of Canada holds rates

Wed Sep 4, 2013 5:15pm EDT

* C$ at C$1.0492 vs US$, or 95.31 U.S. cents
    * Bank of Canada holds benchmark rate at 1 pct
    * Bank says global economic uncertainty hampers growth
    * Poll shows C$ expected to weaken slightly in coming months


    By Solarina Ho and Leah Schnurr
    TORONTO, Sept 4 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Wednesday as it played catch-up
with a rally in other commodity-linked currencies on upbeat
economic data, while investors began to look ahead to crucial
jobs data due at the end of the week.
    The market took a no-surprise policy statement from the Bank
of Canada on Wednesday in its stride. The central bank
maintained its overnight target rate at 1 percent, as expected,
and upheld a vague rate-hike bias with language identical to its
July policy announcement. It said, however, that Canada's
economic revival was taking longer than expected.
 
    "No one was looking for a change in the overnight rate,
obviously, and they kept the forward-looking language entirely
intact," said Andrew Kelvin, senior fixed income strategist at
TD Securities. "On the margins, it was a bit on the dovish side,
but really it's steady as she goes."
    The bank did note that uncertain global economic conditions
were hampering Canadian export growth and business investment.
The bank is expected to keep interest rates at current levels
until the fourth quarter of 2014, according to a Reuters poll of
35 economists last week. 
    The Canadian dollar ended the session trading at
C$1.0492 versus the U.S. dollar, or 95.31 U.S. cents, firmer
than Tuesday's North American finish of C$1.0530, or 94.97 U.S.
cents.
    "Closing below C$1.05 may indicate we're due for a little
bit of a retrenchment," said Don Mikolich, executive director,
foreign exchange sales at CIBC World Markets. 
   "We've had support at C$1.0475, C$1.0450, so those would be
our next immediate targets."
    The Canadian dollar, which is expected to weaken slightly in
the coming months according to a Reuters poll released on
Wednesday, outperformed most other currencies. Its
commodities-linked sister currencies, the Australian 
and New Zealand dollars, were notable exceptions.
    A string of more positive global economic data so far this
week, including a better-than-expected Australian economic
growth report, have given growth-sensitive currencies a boost
and the Canadian dollar has benefited from that, said Camilla
Sutton, chief currency strategist at Scotiabank.
  
    "They're very, very strong. After the Bank of Canada
statement, which I think was fairly neutral to the Canadian
dollar, that just allowed Canada to play catch-up with the
uncertainty out of the way," she said.
    After the Bank of Canada statement, investors were shifting
their focus to jobs reports due on Friday both at home and in
the United States. 
    Data released south of the border on Thursday will give an
early look at the U.S. labor market, with reports on weekly
unemployment claims and private sector hiring for August.
    A strong figure on Friday in the full U.S. employment report
for August could reinforce expectations that the U.S. Federal
Reserve will begin to slow its economic stimulus program before
long. 
    Friday's data is forecast to show the Canadian economy added
20,000 jobs in August, rebounding from the sharp drop of 39,400
the month before. The unemployment rate is expected to hold
steady at 7.2 percent.
    "Anything from 15,000 to 20,000 would be considered a
positive and a bounce-back," Mikolich said. "I think we just
have to have that reinforcement that the recovery is coming."
    Prices for Canadian government debt slipped, with the
two-year bond off 3-1/2 Canadian cents to yield 1.241
percent and the benchmark 10-year bond off 27
Canadian cents to yield 2.718 percent.
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