CANADA FX DEBT-Loonie gets respite after recent drop

Mon Dec 30, 2013 4:22pm EST

* Canadian dollar at C$1.0640, or 93.98 U.S. cents
    * Bond prices mostly higher across the maturity curve


    By Leah Schnurr
    TORONTO, Dec 30 (Reuters) - The Canadian dollar firmed
against the greenback on Monday, clawing back some recent losses
as investors sold the U.S. currency, though the bounce did not
change analysts' bearish outlook on the loonie.
    Market activity was muted and was likely to stay that way
heading into the New Year's Day holiday on Wednesday. Lighter
liquidity can exaggerate moves.
    There is no Canadian economic data on tap until the new
year, but south of the border data showed contracts to purchase
previously owned U.S. homes edged up in November. Still, the
lack of significant releases is likely to leave the Canadian
currency searching for direction. 
    "There's a clear lack of liquidity in the marketplace," said
Gareth Sylvester, director at Klarity FX in San Francisco.
    The Canadian dollar ended the North American
session at C$1.0640 to the greenback, or 93.98 U.S. cents,
stronger than Friday's close of C$1.0704, or 93.42 U.S. cents. 
    The Canadian dollar traded as low as C$1.0728 overnight. The
U.S. dollar lost 0.5 percent against a basket of
currencies.
    After losing more than 7 percent this year, many analysts
expect the loonie to continue to weaken in 2014. A more neutral
stance from the Bank of Canada and the ongoing reduction of the
Federal Reserve's economic stimulus program is seen keeping
pressure on the Canadian dollar.
    Monday's gains do not change the longer-term view, said
Sylvester.
    "Only if we saw this market break down through the C$1.0530
area, then, at least in the near-term, you could see a slightly
deeper retracement, but the underlying trend from a quarterly
perspective still argues that higher U.S. dollar-Canadian dollar
should be seen."
    Investors will get a look at more housing data from the
United States on Tuesday, with the Case-Shiller home price index
for October on tap. Data on regional manufacturing activity and
U.S. consumer confidence will also be released. 
    The next domestic piece of data will be manufacturing
activity for December, due on Thursday.
    Canadian government bond prices were mostly higher across
the maturity curve, with the two-year up 4-1/2
Canadian cents to yield 1.130 percent and the benchmark 10-year
 up 40 Canadian cents to yield 2.737 percent.
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