CANADA FX DEBT-C$ weighed down by worries over Ukraine

Tue Mar 4, 2014 4:38pm EST

* Canadian dollar closes at C$1.1011 or 90.09 U.S. cents
    * Bond prices lower across maturity curve
    * Ukraine tensions seen weighing on rangebound loonie


    By Leah Schnurr and Alastair Sharp
    TORONTO, March 4 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Tuesday, despite comments from
Russia's president that he currently saw no need to use military
force in Ukraine's Crimea region, which helped calm more
risk-averse investors.
    Stocks, currencies and other markets have been volatile in
recent sessions after Russia seized parts of Crimea following
last month's ouster of Ukraine's Moscow-backed leader.
    "Market price action today has been Ukrainian-headline
driven, there's been a couple risk-off-type headlines we saw,"
said Greg Moore, senior currency strategist at Royal Bank of
Canada.
    But Moore added that notwithstanding the increased tensions
in the Black Sea region, the dollar-Canada pair would remain in
an established range between the low-to-mid-C$1.10s and
low-to-mid-C$1.11s.
    "We're just essentially in that consolidation range, so
despite the fact we may have spiked higher on some kind of
headline, I think the neutral trend is still intact," he said.
    Russian President Vladimir Putin on Tuesday said Russia
would only use military force in Ukraine as a "last resort,"
remarks that were seen as being intended to ease fears that
tensions could lead to 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 ended the session at C$1.1100
to the greenback, or 90.09 U.S. cents, a touch weaker 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 tone. 
    The Bank of Canada (BoC) 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 (BoC) is viewing that,"
Sutton said.
    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," she
added.
    Canadian government bond prices were lower across the
maturity curve, with the two-year off 0.6 Canadian
cents to yield 1.030 percent and the benchmark 10-year
 slumping 64 Canadian cents to yield 2.473 percent.
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