CANADA FX DEBT-C$ firms as market looks ahead to inflation data

Tue Feb 18, 2014 9:55am EST

* Canadian dollar at C$1.0963 or 91.22 U.S. cents
    * Bond prices mixed across the maturity curve

    By Leah Schnurr
    TORONTO, Feb 18 (Reuters) - The Canadian dollar firmed
modestly against the greenback on Tuesday, extending this
month's bounce-back from January's heavy slump as investors
looked ahead to inflation data later in the week.
    The loonie had little reaction to data that showed
foreigners reduced their holdings of Canadian securities for the
first time in six months in December. 
    While the report highlighted the skepticism of foreign
investors about the Canadian economy heading into the end of
2013, investors will be more interested in the January data,
which will be released next month, said Scott Smith, senior
market analyst at Cambridge Mercantile Group in Calgary.
    The Canadian dollar fell sharply in January, touching 4-1/2
year lows but the currency has been able to recover some ground
this month. 
    "What we'll be looking for in January is to see whether the
weakness for capital markets in Canada is truly weakness or it's
more just a competitive rebalancing of the loonie," Smith said.
    Market focus was on the Canadian inflation report for
January due on Friday. The Bank of Canada has expressed concern
about weak inflation, and investors will look at the report for
further insight on the potential path of monetary policy, which
has been a major driver of the currency. 
    Investors will get a look at Canadian retail sales figures
for December on the same day.
    "We're range-bound until the end of the week, in my opinion,
where we get some more domestic data to really give us a
catalyst to where this move goes," Smith said.
    The Canadian dollar was at C$1.0963 to the
greenback, or 91.22 U.S. cents, stronger than Friday's close of
C$1.0983, or 91.05 U.S. cents. Many North American trading desks
were closed on Monday for Canadian and U.S. holidays.
    Another potential driver later this week will be the release
of the minutes from the U.S. Federal Reserve's latest
policy-setting meeting. The minutes will be parsed for clues on
what factors might prompt the central bank to pause in the
reduction of its economic stimulus program.
    Baring any surprises from the Fed release, the loonie will
likely be stuck in a range between C$1.10 and the low C$1.09
area until the end of the week, Smith said.
    Canadian government bond prices were mixed across the
maturity curve, with the two-year up 1 Canadian cent
to yield 1.008 percent, while the benchmark 10-year 
was unchanged to yield 2.468 percent.
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