CANADA FX DEBT-C$ gets relief against greenback; eyes on central bank

Thu Jan 16, 2014 4:28pm EST

* Canadian dollar at C$1.0925 or 91.53 U.S. cents
    * Bond prices higher across the maturity curve


    By Leah Schnurr
    TORONTO, Jan 16 (Reuters) - The Canadian dollar firmed
against the greenback on Thursday as the loonie got some relief
from its recent selloff, though investor focus remained on next
week's Bank of Canada meeting and the possibility the central
bank could sound more dovish.
    The Canadian currency got some support from data that showed
foreign investment in Canadian securities nearly doubled to
C$8.66 billion ($7.94 billion) in November, with bond purchases
reaching their second-highest level of the year. 
    The loonie has been on a downward trend since late October
when the Bank of Canada abandoned any talk of rate hikes in its
policy statement after 18 months of signaling that tightening
was on the horizon.
    The Canadian dollar entered 2014 with most analysts
expecting the currency to weaken, but the swiftness of its drop
has surprised some. Just two weeks into 2014, the U.S. dollar
has appreciated nearly 3 percent against the Canadian currency.
    "The market has been waiting for a little steam to come off
the top of this U.S. dollar-Canadian dollar rally we've seen,"
said Scott Smith, senior market analyst at Cambridge Mercantile
Group in Calgary.
    The Canadian dollar ended the North American
session at C$1.0925 to the greenback, or 91.53 U.S. cents,
stronger than Wednesday's close of C$1.0945, or 91.37 U.S.
cents. The loonie touched a more than four-year low on
Wednesday.
    "At this point, I don't think it's unreasonable to see us
move back into the C$1.08 level, we could continue to see a
little bit of consolidation here," said Smith.
    "That said, I don't think there's a lot of room for the
loonie to put in too many strong gains. The big risk on most
traders' radar is going to be the Bank of Canada rate statement
next week."
    After disappointing economic data last week, including a
jobs report that showed the unemployment rate rose back up above
7 percent, markets are speculating the Bank of Canada could
sound more accommodative at its policy-setting meeting on Jan.
22.
    Though one jobs report is unlikely to sway the Bank of
Canada from its course just yet, traders are becoming a little
more careful, said Rahim Madhavji, president at Knightsbridge
FX.com in Toronto.
    "We'll probably hit C$1.10 at some point next week, but I
think at that point we're starting to get quite rich," said
Madhavji.
    "At that point, we'll stay the course until the Canadian
economy picks up in the mid- to latter half of the year where
you start to see the Canadian dollar rebound a bit as the Bank
of Canada gains a little more confidence."
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 5-1/2 Canadian
cents to yield 1.041 percent and the benchmark 10-year
 up 45 Canadian cents to yield 2.525 percent.
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