CANADA FX DEBT-C$ pulls back as searches for catalysts

Tue Feb 25, 2014 9:33am EST

* Canadian dollar at C$1.1077 or 90.23 U.S. cents
    * Bond prices higher across the maturity curve

    By Leah Schnurr
    TORONTO, Feb 25 (Reuters) - The Canadian dollar weakened
modestly against the greenback on Tuesday, pulling back from the
previous session's strong gain as a lack of near-term catalysts
left the currency in a trading range.   
    Investors were also taking in events overseas, with China's
spot yuan falling as economists and traders suspected the
central bank had intervened to add volatility to the currency in
preparation for reform. The Canadian dollar can be sensitive to
developments in China, a major consumer of commodities.
 
    The Canadian dollar had gotten a boost after Bank of Canada
Governor Stephen Poloz said over the weekend that two months of
stronger domestic inflation has made the central bank feel a
little more comfortable.
    The comments reduced some of the speculation that the
central bank could sound more dovish at its next meeting in
March, and had helped lift the loonie on Monday.
    "Today we're just giving a little bit of it back, but so far
it's been very, very quiet in FX markets," said Camilla Sutton,
chief currency strategist at Scotiabank in Toronto.
    The comments, along with last week's stronger-than-expected
rise in the inflation rate, "would suggest a pretty neutral
environment for the Canadian dollar," said Sutton.
    That likely means the currency is somewhat stuck in a range
along the lines of where it traded in February between C$1.0911
and C$1.1224, she said.
    The Canadian dollar was at C$1.1077 to the
greenback, or 90.23 U.S. cents, slightly weaker than Monday's
close of C$1.1067, or 90.36 U.S. cents.
    With a light economic calendar this week, the Canadian
dollar won't have much in the way of domestic catalysts until a
report on fourth-quarter gross domestic product is released on
Friday.
    Growth is forecast to slip to a 2.5 percent annualized rate,
though the report may carry less weight than usual as harsh
winter weather in parts of Canada in December is expected to
have temporarily disrupted activity.
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 0.7 Canadian
cent to yield 1.023 percent and the benchmark 10-year
 up 22.7 Canadian cents to yield 2.497 percent.
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