CANADA FX DEBT-C$ firms as risk aversion fades after Crimea vote

Mon Mar 17, 2014 4:35pm EDT

* Canadian dollar at C$1.1053 or 90.47 U.S. cents
    * Bond prices lower across the maturity curve


    By Leah Schnurr
    TORONTO, March 17 (Reuters) - The Canadian dollar
strengthened against the greenback on Monday on market relief
that the referendum in Crimea on Sunday passed without major
incident, making investors less averse to risk. 
    Crimea formally applied to join Russia on Monday after the 
result of the referendum, which Ukraine called illegal, was
strongly in favor of seceding from Ukraine. The United States
and European Union imposed personal sanctions on Russian and
Crimean officials involved in the seizure of Crimea from
Ukraine. 
    The Canadian dollar had been weaker on Friday as investors
looked for safe havens ahead of the vote, fearing a major
escalation of geopolitical tension. 
    But the outcome was largely as expected and was already
priced into the market, analysts said.
    "We still don't know how the whole Russia-Ukraine situation
will play out ... but I think the fact that there's been no
imminent risk, that has allowed everyone to take a sigh of
relief and just focus back on the data and the markets," said
Rahim Madhavji, president at KnightsbridgeFX.com in Toronto.
    The Canadian dollar ended the North American
session at C$1.1053 to the greenback, or 90.47 U.S. cents,
stronger than Friday's close of C$1.1095, or 90.13 U.S. cents.
    Strength in the currency was limited by uncertainty over
developments in China, where the central bank loosened its grip
on the yuan over the weekend by doubling the daily trading range
for the currency. 
    China has promised it will allow market forces to play a
greater role in the economy and its markets. The move follows
recent concerns about the implications of slowing growth in
China.
    "To some degree that reflects their weakening growth
prospects and hence is weighing on commodity prices, which also
act to soften the Canadian dollar," said Don Mikolich, executive
director of foreign exchange sales at CIBC World Markets in
Toronto.
    The loonie is frequently sensitive to developments in China,
which is the world's second-largest economy and a major consumer
of natural resources.
    Among the day's economic reports, data showed foreigners
returned to buying Canadian securities in January, while a
separate report showed sales of existing homes in Canada edged
higher in February. Neither release had much impact on the
loonie.  
    Investors were also looking ahead to a speech by Bank of
Canada Governor Stephen Poloz on Tuesday, as well as Janet
Yellen's first meeting as chair of the U.S. Federal Reserve,
with a policy statement and news conference on Wednesday.
    The Bank of Canada shifted policy gears late last year when
it dropped any mention of interest rate hikes, and that more
dovish policy tilt has been a major driver for the Canadian
dollar in recent months. In its most recent policy announcement,
the central bank continued to express concerns about weak
inflation.
    "While I think the (Poloz) comments are important, I really
don't think it's going to change anything because they've
basically said they're going to wait for the data to play out,"
Madhavji said.
    While the Fed is expected to reduce its monthly bond-buying
stimulus by another $10 billion, policymakers could decide to
scrap their threshold of a 6.5 percent unemployment rate for
considering a rise in interest rates. 
    Canadian government bond prices were lower across the
maturity curve, with the two-year off 4 Canadian
cents to yield 1.031 percent and the benchmark 10-year
 down 34 Canadian cents to yield 2.433 percent.
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