CANADA FX DEBT-C$ weakens after China service sector data

Mon Jan 6, 2014 9:29am EST

* Canadian dollar at C$1.0675 or 93.68 U.S. cents
    * Canadian producer prices rise 0.1 pct in Nov
    * Bond prices mostly higher across the maturity curve

    By Leah Schnurr
    TORONTO, Jan 6 (Reuters) - The Canadian dollar weakened
against the greenback on Monday after data showed service
industry growth in China slowed sharply last month.
    Service sector activity picked up across most of Europe, but
China did not fare as well, with the index falling to a two-year
low. With China a major consumer of commodities, the Canadian
dollar can be sensitive to economic developments in the world's
second-largest economy. 
    As well, domestic data showed Canadian producer prices edged
up in November, as expected, though raw materials prices
dropped, mainly due to crude energy products. 
    "As a leading indicator of consumer inflation, the continued
softness in raw materials prices doesn't bode well for CPI and
consumer prices, which obviously the Bank of Canada has a pretty
keen eye on right now," said Scott Smith, senior market analyst
at Cambridge Mercantile Group in Calgary.
    The Canadian dollar was at C$1.0675 to the
greenback, or 93.68 U.S. cents, weaker than Friday's close of
C$1.0639, or 93.99 U.S. cents.
    Trading activity was expected to be back to normal on Monday
with investors returning from Christmas and New Year's holidays.
    Many analysts are expecting further weakness in 2014 in the
loonie currency as the Bank of Canada is seen maintaining a more
neutral policy stance and the Federal Reserve gradually unwinds
its economic stimulus program.
    "We've had a bit of a consolidation over the last few
sessions here, but as of right now we're having a lot of trouble
sustaining any movement through C$1.06 to the downside," said
Smith.
    "It shows again that the longer-term trend is still intact
and that's a rising U.S. dollar-Canadian dollar."
    Canadian government bond prices were mostly higher across
the maturity curve, though the two-year was down half
a Canadian cent to yield 1.139 percent. The benchmark 10-year
 was up 8 Canadian cents to yield 2.745 percent.
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