CANADA FX DEBT-C$ little changed as market waits for data

Wed May 28, 2014 9:50am EDT

* Canadian dollar at C$1.0855 or 92.12 U.S. cents
    * Bond prices higher across the maturity curve

    By Leah Schnurr
    TORONTO, May 28 (Reuters) - The Canadian dollar firmed
modestly against the greenback on Wednesday but stayed stuck in
its recent trading range as a lack of economic data until later
in the week left it without a catalyst to push it decisively in
either direction.
    Investors were looking ahead to Thursday's domestic current
account report and Friday's gross domestic product reading, both
for the first quarter. South of the border, GDP will be released
on Thursday.
    While the loonie has drifted higher so far in May, it has
stayed within a slim range as modestly improving economic data
has been balanced against the Bank of Canada's neutral policy
stance.  
    "That's the key piece right now for the Canadian dollar is
just how the central bank manages to almost dance around what we
have, which is an improving fundamental backdrop," said Camilla
Sutton, chief currency strategist at Scotiabank in Toronto.
    Once the market is clear of this week's data, attention will
be turning to the release of the central bank's latest policy
statement next week. Following last week's uptick in the
inflation rate, investors expect the Bank of Canada could sound
less dovish than it has recently.
    "That's the offset, is that we really need a shift in tone
from the Bank of Canada before we risk a significant Canadian
dollar rally from here," Sutton said.
    The Canadian dollar was at C$1.0855 to the
greenback, or 92.12 U.S. cents, slightly stronger than Tuesday's
close of C$1.0861, or 92.07 U.S. cents.
    The euro weakened against the loonie as market expectations
grew that the European Central Bank will ease monetary policy
next week. Those expectations were reinforced by comments from
ECB President Mario Draghi earlier in the week that the bank was
aware of the risks from prices remaining too low for too long.
 
    The euro was at C$1.4775. 
    "Pretty much everyone as far as I can gauge has priced in at
least an interest rate cut," Sutton said. "I think increasingly
the commentary from President Draghi would suggest that there be
some kind of targeted measure that would try to relieve some of
the credit constraints."
    The yield on the benchmark Canadian government 10-year bond
 fell to its lowest level in nearly a year as bond
prices across the maturity curve rose. 
    The 10-year was up 43 Canadian cents to yield 2.253 percent,
its lowest since last June, while the two-year rose 1
Canadian cent to yield 1.050 percent.

 (Editing by Peter Galloway)
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