CANADA FX DEBT-C$ weakens as more pressure seen in 2014

Fri Dec 27, 2013 4:36pm EST

* Canadian dollar at C$1.0704 or 93.42 U.S. cents
    * Bond prices lower across the maturity curve


    By Leah Schnurr
    TORONTO, Dec 27 (Reuters) - The Canadian dollar weakened
against the greenback on Friday in a choppy post-holiday session
as investors were expecting the loonie to face further pressure
heading into the new year.
    The loonie was also lower against other major currencies.
Against the euro, the Canadian dollar hit a nearly
four-year low at C$1.4816 as the euro was pushed higher by banks
shoring up their balance sheets. 
    With no Canadian economic data on tap until the new year and
the U.S. calendar similarly sparse, investors focused on the
longer-term trends for the loonie, said Scott Smith, senior
market analyst at Cambridge Mercantile Group in Calgary.
    "The path of least resistance for the loonie is still
lower," Smith said.
    The Canadian dollar has been bruised in recent months by a
more neutral policy stance from the Bank of Canada that has
markets expecting interest rates will stay low for longer.
    Meanwhile, the U.S. Federal Reserve has begun reducing its
economic stimulus, which should benefit the U.S. dollar.
    "That divergence is going to work in the U.S. dollar's favor
to the detriment of the loonie as we move into 2014," Smith
said.
    The Canadian dollar ended the North American
session at C$1.0704 to the greenback, or 93.42 U.S. cents,
weaker than Thursday's close of C$1.0649, or 93.91 U.S. cents,
according to Reuters data.
    While the next couple of trading sessions could be choppy
due to month- and year-end portfolio rebalancing, the loonie is
likely to weaken further in the first half of 2014 before
regaining some strength in the later part of next year, Smith
said.
    The Canadian dollar fell below C$1.07 for the first time in
a week, a level analysts see as a key support area. The lighter
liquidity with some investors still away for the holidays can
exaggerate moves.
    "As is often the case in thinner markets, a few trades that
go through of any size can push things around in a certain
direction," said Don Mikolich, executive director of foreign
exchange sales at CIBC World Markets in Toronto.
    Investors also had their eyes on U.S. benchmark Treasury
debt as yields rose above 3.0 percent on the 10 year note to
their highest level in more than two years, which should
increase the attractiveness of the greenback.
    "If you start to see long-rates creeping up, that will be
U.S. dollar positive, but at the same time ... there is a
recognition that good U.S. economic performance will be Canada
positive," said Mikolich.
    Canadian government bond prices were lower across the
maturity curve, with the two-year down 3 Canadian
cents to yield 1.153 percent and the benchmark 10-year
 down 53 Canadian cents to yield 2.786 percent.
    Canadian bond and equity markets were closed on Wednesday
and Thursday for the Christmas and Boxing Day holidays.
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