CANADA FX DEBT-C$ weakens on China data, but holds recent range

Mon Jan 6, 2014 4:39pm EST

* Canadian dollar at C$1.0652 or 93.88 U.S. cents
    * Canadian producer prices rise 0.1 pct in Nov
    * Bond prices higher across the maturity curve


    By Leah Schnurr
    TORONTO, Jan 6 (Reuters) - The Canadian dollar weakened
modestly against the greenback on Monday, reacting to figures
that showed growth in China's service sector slowed sharply last
month, though the currency stuck to its recent range ahead of
some key data releases later in the week.
    Trading activity was back to normal for the first time this
year after some choppy sessions in lighter volume during the
Christmas and New Year's holiday weeks.
    Data showed service sector activity picked up across most of
Europe, but China did not fare as well, with the index there
falling to a two-year low. Because China is 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 ended the North American
session at C$1.0652 to the greenback, or 93.88 U.S. cents,
weaker than Friday's close of C$1.0639, or 93.99 U.S. cents.
    "We've been playing a range from C$1.0580 to C$1.0735 for
the last little bit, I don't expect us to get too much outside
of that range in the near future," said John Curran, senior vice
president at CanadianForex in Toronto.
    Curran said the Canadian dollar could get direction from
economic data later in the week, which includes unemployment
reports for both Canada and the United States, as well as the
minutes from the U.S. Federal Reserve's policy-setting meeting
in December.
    The Fed decided at that meeting to start reducing the amount
of bonds it buys to boost the economy, a move that caught some
in the markets off guard. Investors will parse the minutes for
further clarity on how quickly the central bank could wind down
the program.
    The gradual decrease in the Fed's bond buying, as well as a
more dovish Bank of Canada are both factors that are expected to
weigh on the Canadian dollar this year.
    Over the weekend, Finance Minister Jim Flaherty said Bank of
Canada Governor Stephen Poloz had told him and provincial
finance ministers in a recent meeting the currency could see
some weakness. 
    Canadian government bond prices were higher across the
maturity curve, with the two-year up half a Canadian
cent to yield 1.134 percent. The benchmark 10-year 
was up 30 Canadian cents to yield 2.717 percent.
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