CANADA FX DEBT-C$ keeps up weakness heading into Bank of Canada decision

Tue Jun 3, 2014 9:27am EDT

* Canadian dollar at C$1.0917 or 91.60 U.S. cents
    * Bond prices lower across the maturity curve

    By Leah Schnurr
    TORONTO, June 3 (Reuters) - The Canadian dollar weakened
against the greenback on Tuesday, continuing the previous
session's drop as investors positioned ahead of a Bank of Canada
policy decision later in the week.
    The central bank shifted to a neutral policy stance late
last year as it cited the weak inflation environment, a move
that has weighed on the loonie.
    A pick up in April's inflation rate had stoked some
speculation that the Bank of Canada could sound moderately less
dovish when it releases its statement on Wednesday, but last
week's disappointing economic growth figures deflated those
expectations.
    The Bank of Canada is due to release its interest rate
decision at the same time, which is forecast to remain unchanged
at 1 percent. The central bank is seen keeping rates on hold
until well into 2015. 
    "The first-quarter GDP data in our view gives them a little
bit more wiggle room to still sound fairly cautious," said David
Tulk, chief Canada macro strategist at TD Securities in Toronto.
    "If anything, maybe some of the weakness that we have seen
in the Canadian dollar over the last couple of days is in
recognition that the Bank of Canada does not have to
specifically reference some of the inflation strength, they can
still hide behind the weaker growth story."
    The Canadian dollar was at C$1.0917 to the
greenback, or 91.60 U.S. cents, weaker than Monday's close of
C$1.0898, or 91.76 U.S. cents.
    The loonie has been stuck in a narrow trading range in
recent weeks, but Monday's drop brought it close to breaking out
of that band.
    A close above C$1.0930 could set the currency up for further
declines, said Tulk.
    Canadian government bond prices were lower across the
maturity curve, with the two-year down half a
Canadian cent to yield 1.066 percent and the benchmark 10-year
 down 21 Canadian cents to yield 2.303 percent.


 (Editing by Meredith Mazzilli)
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