CANADA FX DEBT-C$ steadies after 4-year low, focus on central bank

Wed Jan 15, 2014 4:35pm EST

* Canadian dollar at C$1.0945 or 91.37 U.S. cents
    * Bond prices mixed across the maturity curve


    By Leah Schnurr
    TORONTO, Jan 15 (Reuters) - The Canadian dollar was little
changed against the greenback on Wednesday after hitting another
four-year low in overnight trade as investors were wary the Bank
of Canada could turn more dovish at its upcoming policy meeting.
    The loonie has been on a downward trend since late October
when the central bank abandoned any talk of rate hikes in its
policy statement after 18 months of signaling that tightening
was on the horizon.
    The selloff has intensified in recent sessions, fueled by
disappointing economic data last week that helped send the
currency through key technical barriers. In the first two weeks
of 2014, the U.S. dollar has appreciated 3 percent against the
Canadian currency. 
    Some profit-taking offset Wednesday's earlier decline, but
attention was turning toward next week's meeting of the Bank of
Canada. Market expectations are building that the central bank
could further soften its policy statement and perhaps step
toward an outright easing bias, said Shaun Osborne, chief
currency strategist at TD Securities in Toronto.
    "I think myself it's a little too early to expect that; I
think the Bank's going to want to see more evidence on the
inflation front before it takes that move," said Osborne.
    "But given the way Governor Poloz seems to be steering the
policy supertanker at the moment, there's very definitely a risk
of a shift at some point in the next few months."
    Bank of Canada chief Stephen Poloz earlier this month said
the central bank should keep its key interest rate on hold until
economic data persuades it otherwise. 
    The Canadian dollar ended the North American
session at C$1.0945 to the greenback, or 91.37 U.S. cents,
slightly firmer than Tuesday's close of C$1.0948, or 91.34 U.S.
cents. The Canadian dollar earlier traded as low as C$1.0992,
its lowest since September 2009.
    "The path of least resistance is still downward," said Tony
Valente, senior FX dealer for global treasury solutions for
AscendantFX in Toronto. Valente said the loonie could trade in
the C$1.15 area by June before improving in the latter part of
2014.
    "I'm not as pessimistic as others; I think in the second
half of the year the (Canadian) dollar should do better only
because the prescription for the economy is a weaker dollar at
this point. Six months of weakness will probably help the
exporters in the second half of the year."
    Strength in the U.S. dollar also pressured the loonie after 
data was released showing U.S. producer prices rose in December,
while separate data showed manufacturing activity in New York
state jumped this month. The U.S. dollar index was up 0.4
percent. 
    Canadian government bond prices were mixed across the
maturity curve, with the two-year off 1 Canadian cent
to yield 1.061 percent, while the benchmark 10-year 
was up 2 Canadian cents to yield 2.582 percent.
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