CANADA FX DEBT-C$ firms ahead of Bank of Canada policy statement

Wed Jan 22, 2014 9:23am EST

* Canadian dollar at C$1.0959 or 91.25 U.S. cents
    * Bond prices lower across the maturity curve

    By Leah Schnurr
    TORONTO, Jan 22 (Reuters) - The Canadian dollar firmed
modestly against the greenback on Wednesday, consolidating after
hitting a four-year low in the previous session and as investors
awaited an imminent policy statement from the Bank of Canada
that some expect could see the central bank turn more dovish.
    The loonie has lost more than 6 percent since late October
last year when the Bank of Canada shifted policy by dropping any
talk of interest rate hikes after 18 months of signaling that
policy tightening was on the horizon.
    The sell-off has deepened in recent weeks and the currency
broke through the psychologically important C$1.10 level on
Tuesday. Just three weeks into 2014, the U.S. dollar has
appreciated more than 3 percent against the Canadian dollar.
    After some disappointing economic data earlier this month,
including a surprise increase in the unemployment rate, markets
are positioning for the Bank of Canada to sound more dovish 
when it releases its policy statement on Wednesday.
    The Bank of Canada will also announce a decision on interest
rates and release its Monetary Policy Report at 10 a.m. (1500
GMT), providing a quarterly update of its economic forecasts.
The central bank is widely expected to keep rates at 1 percent.
    "We think they're going to sound a little bit more dovish
but will stop short of adopting an outright easing bias," said
Benjamin Reitzes, senior economist at BMO Capital Markets in
Toronto.
    While the Bank of Canada could lower their inflation
forecast, "from a growth perspective, things actually look
pretty decent, and that's what keeps them from adopting that
easing bias," said Reitzes.
    The Canadian dollar was at C$1.0959 to the
greenback, or 91.25 U.S. cents, firmer than Tuesday's close of
C$1.0972, or 91.14 U.S. cents.    
    Canadian government bond prices were lower across the
maturity curve, with the two-year off 2 Canadian
cents to yield 1.042 percent and the benchmark 10-year
 down 7 Canadian cents to yield 2.517 percent.
FILED UNDER:
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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