CANADA FX DEBT-C$ firms as investors take a breath after slide

Tue Feb 4, 2014 10:01am EST

* Canadian dollar at C$1.1081 or 90.24 U.S. cents
    * Bond prices lower across the maturity curve

    By Leah Schnurr
    TORONTO, Feb 4 (Reuters) - The Canadian dollar firmed
against the greenback on Tuesday, boosted by some profit-taking
as investors tried to gauge the  path of economic growth on both
sides of the border.
    Analysts expect the recent respite from loonie selling to be
temporary, however, and see the currency resuming its downward
path.  
    The Canadian dollar has come under intense pressure in the
last few months, with selling intensifying in January as the
Bank of Canada left the door open to an interest rate cut and as
investors turned increasingly negative toward the currency. 
    Expectations that the U.S. economy will outperform Canada's
this year have also weighed on the loonie coming into 2014, but
recent softer U.S. data has helped temper that. U.S.
manufacturing data on Monday showed activity slowed sharply in
January. 
    The view that the performance gap between the two countries
could be more narrow that some had anticipated gave the loonie
some support on Tuesday, said Don Mikolich, executive director
of foreign exchange sales at CIBC World Markets in Toronto.
    "If the end game is about who is going to tighten rates
first and when, I think any slowdown States-side certainly
doesn't accelerate the timing of any rate hikes in the U.S.
relative to Canada. They may well be timed around the same
period," Mikolich said.
    "If we're just keeping pace with each other, which is what
the data lately has been suggesting, I think we might see a
little bit of a pause before any further Canadian dollar
weakness." 
    The Canadian dollar was at C$1.1081 to the
greenback, or 90.24 U.S. cents, stronger than Monday's close of
C$1.1097, or 90.11 U.S. cents.
    The Canadian dollar touched fresh 4-1/2-year lows last week
but has built some momentum since then as investors consolidate
positions. Data on Friday showed investors had pared back their
Canadian dollar short positions in the week ended Jan. 28.
 
    "We see the Canadian dollar now consolidating just below
C$1.11 and I think it does open up a bit of room to test back
down to that C$1.0950 area, where we've seen the previous
bottom," Mikolich said.
    "Most likely this is a short-term trend here. I don't think
we've lost our central bank's bias toward a weaker currency."
    The Canadian economic calendar is light until Thursday when
investors will get data on the trade balance for December. The
closely watched unemployment report is set for Friday, with
hiring forecast to have picked up in January after the Canadian
economy unexpectedly shed jobs at the end of the year.
    Canadian government bond prices were lower across the
maturity curve, with the two-year off 4-1/2 Canadian
cents to yield 0.954 percent and the benchmark 10-year
 down 30 Canadian cents to yield 2.333 percent.
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