CANADA FX DEBT-C$ weakens heading into Bank of Canada decision

Wed Jun 4, 2014 9:10am EDT

* Canadian dollar at C$1.0926 or 91.52 U.S. cents
    * Bond prices higher across the maturity curve

    By Leah Schnurr
    TORONTO, June 4 (Reuters) - The Canadian dollar weakened
against the greenback on Wednesday after data showed an
unexpected international trade deficit in April and as a Bank of
Canada policy decision later in the morning kept investors wary.
    After two months of surplus, Canada fell back into a trade
deficit in April, with a trade gap of C$638 million ($585
million), while March was revised up to a surplus of C$766
million.
    The Canadian dollar touched a session low of C$1.0951 after
the report that briefly brought the currency to a nearly
one-month low. 
    Mark Chandler, head of Canadian fixed income and currency
strategy at Royal Bank of Canada, said the report was a bit of a
concern, though he noted the data series is a volatile one.
    "We'd hoped for more and we still do going forward on the
trade side, but these hiccups and volatility in the monthly
numbers aren't very encouraging," he said.
    The market's main focus for the day was on the Bank of
Canada, which will announce its interest rate decision at 10
a.m. (1400 GMT).
    The central bank is expected to keep its benchmark interest
rate at 1 percent, but investors will scrutinize the
accompanying statement for any change in tone that might provide
more insight into the Bank of Canada's policy path.
    The Bank has repeatedly flagged its concern about the low
inflation environment. While the inflation rate picked up in
April, analysts say the disappointing economic growth in the
first quarter could see the Bank of Canada stick to its neutral
tone.
    If the central bank were to say that it's not worried about
inflation returning to its 2 percent target and that underlying
inflation is still low, that could be taken as somewhat dovish,
said Chandler.
    "With respect to the currency, that's probably the biggest
risk," Chandler said.
    The Canadian dollar was at C$1.0926 to the
greenback, or 91.52 U.S. cents, weaker than Tuesday's close of
C$1.0910, or 91.66 U.S. cents.
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 1-1/2 Canadian
cents to yield 1.066 percent and the benchmark 10-year
 up 12 Canadian cents to yield 2.328 percent.

 (Editing by W Simon)
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