CANADA FX DEBT-C$ firms a tad as risk aversion eases

Tue Mar 4, 2014 9:27am EST

* Canadian dollar at C$1.1076 or 90.23 U.S. cents
    * Bond prices lower across the maturity curve

    By Leah Schnurr
    TORONTO, March 4 (Reuters) - The Canadian dollar firmed
slightly on Tuesday as comments from Russia's president that he
saw no need to use military force in Crimea for now helped take
some of the risk aversion out of the market.
    Investors have been on edge in recent sessions as Russia
seized Ukraine's Crimea region following last month's ouster of
Ukraine's leader. 
    Vladimir Putin on Tuesday said Russia would only use
military force in Ukraine as a last resort, remarks that were
seen as being meant to ease fears of war. 
    "Probably the single biggest driver of currencies in the
European session was the news surrounding Ukraine," said Camilla
Sutton, chief currency strategist at Scotiabank in Toronto.
    "The Canadian dollar is very sensitive to global risk
dynamics, and typically when global risk is elevated or risk
aversion is rising, the Canadian dollar weakens."
    The Canadian dollar was at C$1.1076 to the
greenback, or 90.23 U.S. cents, a touch stronger than Monday's
close of C$1.1084, or 90.22 U.S. cents.
    Investors were also turning their attention to Wednesday's
Bank of Canada meeting. The central bank is expected to hold
interest rates at 1 percent, but economists will be watching the
accompanying statement for any change in language. 
    The Bank of Canada took a more dovish shift in policy last
year, and left the door open to a cut in interest rates at its
most recent meeting in January, saying it was more concerned
about the weak inflation environment.
    But data since then showed January's inflation rate rose
more than expected and analysts say that will likely prompt the
central bank to hold the line on Wednesday.
    "I would expect Governor Poloz maintains a neutral bias, and
that the tone is quite similar to what we heard in January, with
the potential that he makes a brief reference to
weather-disrupted data and how the Bank is viewing that," said
Sutton.
    Until then, the currency is likely to stay in a range
similar to what was seen in Monday's session between C$1.1039
and C$1.1110, Sutton said.
    "Most of the major currencies have really been stuck in
ranges over the last couple weeks and the Canadian dollar is no
exception to that. We're likely to see that continue."
    Canadian government bond prices were lower across the
maturity curve, with the two-year off 2.7 Canadian
cents to yield 1.012 percent and the benchmark 10-year
 down 28 Canadian cents to yield 2.433 percent.
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