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

Wed Feb 19, 2014 4:57pm EST

* Canadian dollar at C$1.1082 or 90.24 U.S. cents
    * Wholesale trade down 1.4 pct in December
    * Bond prices mostly lower across the maturity curve


    By Leah Schnurr
    TORONTO, Feb 19 (Reuters) - The Canadian dollar tumbled more
than 1 percent against the greenback on Wednesday on track for
its biggest daily percentage drop in over two years, hurt by
data that showed domestic wholesale trade fell more than
expected in December.
    The drop interrupted the loonie's run higher in recent weeks
that has seen it rebound from 4-1/2 year lows hit at the end of
January. The currency was hit hard in the final months of 2013
and into the new year as a more dovish stance from the central
bank pushed out expectations for when interest rates will rise.
    The 1.4 percent drop in wholesale trade 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 Canadian dollar ended the North American
session at C$1.1082 to the greenback, or 90.24 U.S. cents,
weaker than Tuesday's close of C$1.0951, or 91.32 U.S. cents,
according to the Bank of Canada.
    The currency was down 1.2 percent against the U.S. dollar,
putting it on track for its biggest one-day drop since December
2011, according to Thomson Reuters data.     
    After breaking through the C$1.10 level on Wednesday so
easily, the Canadian dollar could see a resumption of January's
selling if it surpasses C$1.1130, said Greg Anderson, global
head of foreign exchange strategy at BMO Capital Markets in New
York.
    Nonetheless, Anderson thinks the loonie most likely will not
break through that level until the market gets the next
employment figures due at the beginning of March.
    "A good number for the U.S. and we'll be right back above
C$1.12," Anderson said.
    Minutes from the U.S. Federal Reserve's most recent
policy-setting meeting also pressured the loonie. The minutes
showed several Fed policymakers wanted to drive home the idea
that their economic stimulus program would be reduced in
predictable steps unless the economy surprises them.
 
    The removal of the Fed's bond-buying program is typically
seen as a negative for the Canadian dollar, as it should benefit
the U.S. dollar.
    Even with the weak wholesale trade data, investors expect
the biggest risk for the loonie this week will come from January
inflation data due on Friday. 
    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."
    Canadian government bond prices were mostly lower across the
maturity curve, with the two-year off 1 Canadian cent
to yield 1.000 percent, though the benchmark 10-year 
was up 3 Canadian cents to yield 2.439 percent.
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