CANADA FX DEBT-C$ weakens after wholesale trade data disappoints

Wed Feb 19, 2014 9:50am EST

* Canadian dollar at C$1.1019 or 90.75 U.S. cents
    * Wholesale trade down 1.4 pct in December
    * Bond prices higher across the maturity curve

    By Leah Schnurr
    TORONTO, Feb 19 (Reuters) - The Canadian dollar weakened
against the greenback on Wednesday, hurt by data that showed
domestic wholesale trade dropped more than expected in December
to hit its lowest level in six months.
    The 1.4 percent drop in wholesale trade from November was
the latest in a series of negative economic figures for
December, though some economists have blamed bad winter weather
for the disappointing data. 
    "It was a pretty poor number, all things considered," said
Greg Moore, senior currency strategist at Royal Bank of Canada
in Toronto.
    "It does take the tracking lower for how the Canadian
economy ended 2013. That's why we've seen a pretty massive move
lower in reaction to that for the Canadian dollar."
    The drop in the currency was the steepest since late January
and interrupted its recent run higher. The loonie has gained 1
percent against its U.S. counterpart since the start of
February, rebounding from 4-1/2 year lows hit at the end of
January.
    The Canadian dollar was sitting at a session low of
C$1.1019 to the greenback, or 90.75 U.S. cents, on Wednesday,
weaker than Tuesday's close of C$1.0951, or 91.32 U.S. cents.
    Overnight, the currency had risen as high as C$1.0911, its
highest level in just over a month.
    Even with the weak wholesale trade data, investors expect
the biggest risk for the loonie will come from January inflation
data at the end of the week. 
    The Bank of Canada has noted its concern about the weak
inflation environment and the numbers will be watched for any 
impact they might have on monetary policy. 
    "The Bank of Canada has been a very important driver of the
Canadian dollar over the past six months, particularly given
their gradual softening of their message and one that focuses
more intently on the inflation numbers," Moore said.
    "With that in mind, this Friday's CPI number will be a bit
of a shaping moment for how forecasters consider the Bank of
Canada meeting at the beginning of March."
    Investors will also assess the potential path of central
bank policy south of the border with Wednesday afternoon's
release of the minutes from the U.S. Federal Reserve's most
recent meeting.
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 2-1/2 Canadian
cents to yield 0.982 percent and the benchmark 10-year
 up 20 Canadian cents to yield 2.418 percent.
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