CANADA FX DEBT-C$ weaker on China data, before central bank report

Tue Apr 15, 2014 5:05pm EDT

* Canadian dollar at C$1.0977 vs US$, or 91.10 U.S. cents
    * Bond prices mostly higher across the maturity curve

 (Adds strategist quote; updates prices to close)
    By Alastair Sharp
    TORONTO, April 15 (Reuters) - The Canadian dollar ended
slightly weaker after hitting its lowest level against the
greenback in more than a week on Tuesday, hurt by concern over
China's economic prospects and by investor caution ahead of the
Bank of Canada's latest policy statement on Wednesday.
    With market focus on China, domestic economic data on
Tuesday failed to move the currency off session lows. Figures
showed Canadian manufacturing sales rose more than expected in
February, although January's figures were revised down.
 
    "The dominant theme today was China, as well as Ukraine
issues. So there was a sense of risk-off, with the China issue
in particular weighing on commodity prices," said Greg Moore,
senior currency strategist at Royal Bank of Canada.
    Canada's currency is sensitive to economic developments in
China, a major consumer of the natural resources that Canada
exports.
    News that Ukrainian forces had launched military operations
against pro-Russian separatists helped keep oil prices higher,
while copper and nickel both fell.  
    Chinese data showed the country's money supply grew at the
weakest pace in more than a decade in March, suggesting
faltering economic momentum in the world's second-largest
economy. 
    "Everyone has been focused more recently on the risk of
deceleration going into the new year," said David Tulk, chief
Canada macro strategist at TD Securities in Toronto.
    "We've seen that in some of the manufacturing data in China
and this is just an extension of that, especially as it's
relevant for the generation of credit and it seems that that is
the driving force of a lot of Chinese growth."
    The Canadian dollar ended the session trading at
C$1.0977 to the greenback, or 91.10 U.S. cents, weaker than
Monday's close of C$1.0953, or 91.30 U.S. cents.
    The main event of the week will be the Bank of Canada's
policy decision on Wednesday. While the central bank is expected
to hold rates steady at 1 percent, analysts will scrutinize the
statement and quarterly economic projections for insight into
the direction of monetary policy.
    The bank shifted gears last year when it struck a more
dovish tone, which has weighed on the loonie in recent months.
    RBC's Moore said the economic data since the central bank's
last quarterly report has been better than expected, providing
scope for reduced pessimism this time around.
    But with the Canadian dollar having regained more than 2
percent since hitting a 4-1/2 year low last month, the currency
could be vulnerable to a pullback even if the central bank is
not overly dovish, analysts say.
    Moore said the loonie would likely trade in a wider range 
between C$1.0860 and C$1.1020 this week given the risk of an
unexpected twist from the Bank, while inflation data due on
Thursday will most likely be overlooked.
    "People will be focused more on the Bank of Canada's
longer-term view on inflation rather than what it was last
month," he said.
    Canadian government bond prices were higher across the
maturity curve, with the two-year up one Canadian
cent to yield 1.047 percent and the benchmark 10-year
 up 24 Canadian cents to yield 2.386 percent.

 (Additional reporting by Leah Schnurr; Editing by Peter
Galloway and Andre Grenon)
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