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

Tue Feb 18, 2014 4:26pm EST

* Canadian dollar at C$1.0951 or 91.32 U.S. cents
    * Bond prices higher across the maturity curve


    By Leah Schnurr
    TORONTO, Feb 18 (Reuters) - The Canadian dollar firmed
against the greenback on Tuesday, extending this month's
bounce-back from January's heavy slump, while investors looked
ahead to inflation data later in the week.
    The currency was helped by a decline in the U.S. dollar
after economic data south of the border raised concerns that
recent signs of weakness in the U.S. economy point to deeper
problems than just weather-related issues. 
    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. 
    Analysts said the report had little impact on trading
because the December figures were too far in the past.
    "We already knew in a way that flows into Canadian assets
had been slowing quite meaningfully over the past year," said
Charles St-Arnaud, Canadian economist and currency strategist at
Nomura Securities International in New York.
    "I see it more as a return to normal, where Canada is no
longer the darling of financial markets where everybody wanted
to accumulate Canadian bonds," St-Arnaud said.
    "In a way, it removes a lot of support we've seen for the
Canadian dollar in the past three years. It will be harder now
for the Canadian dollar to go back to parity."
    The Canadian dollar ended the North American
session at C$1.0951 to the greenback, or 91.32 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.
    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. The currency is up about 1.6 percent against the
U.S. dollar this month, though that does not completely offset
January's more than 4 percent drop.
    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," said Scott Smith, senior
market analyst at Cambridge Mercantile Group in Calgary.
    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.
    Barring 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 higher across the
maturity curve, with the two-year up 3.3 Canadian
cents to yield 0.996 percent and the benchmark 10-year
 up 17 Canadian cents to yield 2.446 percent.
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