CANADA FX DEBT-C$ steady as it regroups after recent drop

Thu Mar 27, 2014 10:05am EDT

* Canadian dollar at C$1.1087 or 90.20 U.S. cents
    * Bond prices mostly lower across the maturity curve

    By Leah Schnurr
    TORONTO, March 27 (Reuters) - The Canadian dollar was little
changed against the greenback on Thursday, continuing to
consolidate after last week's selloff, which investors have
deemed to have been overdone.
    The loonie fell to a 4-1/2 year low last week, hit by the
Bank of Canada saying it could not rule out an interest rate cut
and by the prospect of a faster than expected timetable for
raising interest rates in the United States.
    But the currency has managed to recoup much of last week's
decline in recent sessions, with a quiet calendar for domestic
economic data this week providing few catalysts to spur trade.
    "Markets are taking a bit of a breather after last week,"
said Benjamin Reitzes, senior economist at BMO Capital Markets
in Toronto.
    He added that investors are realizing the drop may have been
an over-reaction, particularly to comments made by Bank of
Canada Governor Stephen Poloz.
    In a speech last week, Poloz warned about the risk of a
prolonged period of sluggish growth and low interest rates. When
asked if he could rule out a rate cut, Poloz said he could not,
which markets latched on to, even as Poloz repeated that the
central bank's stance was neutral.   
    "Things aren't quite as dovish from the Bank of Canada's
perspective as markets thought immediately after his comments,"
Reitzes said.
    The Canadian dollar was at C$1.1087 to the
greenback, or 90.20 U.S. cents, a tad weaker than Wednesday's
close of C$1.1084, or 90.22 U.S. cents. The currency earlier
strengthened to a session high of C$1.1076, its highest level in
more than a week.
    With no Canadian economic data due until next Monday,
investors were watching reports out of the United States. Data
on Thursday was mixed, with U.S. growth revised higher in the
fourth quarter, though it came in slightly below expectations.
Separately, first-time jobless claims declined last week.
 
    Even with this week's stronger tone for the Canadian dollar,
many analysts still expect it to resume a downward path.
    "Our forecast is still for a weaker Canadian dollar. It's
tough to see a good reason to consistently buy Canadian dollars
at this point," Reitzes said.
    "Our forecast is for the U.S. economy to strengthen at a
quicker pace than Canada, so we have Canada improving but not
quite as much as the U.S., and that's likely going to push U.S.
yields relatively higher faster than Canada. They're both going
to move up, the U.S. will move up a little faster, so that will
favor the U.S. dollar."
    Canadian government bond prices were mostly lower across the
maturity curve, with the two-year down 1-1/2 Canadian
cents to yield 1.068 percent and the benchmark 10-year
 down 14 Canadian cents to yield 2.461 percent.

 (Editing by Peter Galloway)
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