CANADA FX DEBT-Loonie slips with oil price; Yellen, Bank of Canada in view

Tue Jul 15, 2014 9:39am EDT

* Canadian dollar at C$1.0727 or 93.22 U.S. cents
    * Bond prices mixed across maturity curve

    By Leah Schnurr
    TORONTO, July 15 (Reuters) - The Canadian dollar weakened
against the greenback on Tuesday, dropping along with oil prices
in cautious trading ahead of a policy statement by the Bank of
Canada later in the week.
    Markets were also awaiting congressional testimony on
Tuesday and Wednesday by U.S. Federal Reserve Chair Janet
Yellen. Any comments by Yellen that shed light on the path of
monetary policy will have an impact on the U.S. dollar and
therefore affect the loonie.
    The Bank of Canada statement on Wednesday will be the
biggest event of the week for Canada. While the central bank is
widely expected to hold rates at 1 percent, investors will be
watching to see if it reacts to recent stronger-than-expected
inflation.
    Between Yellen on Tuesday and the Bank of Canada on
Wednesday, "they offer a nice tennis match where the currency
can certainly go between two extremes," said David Tulk, chief
Canada macro strategist at TD Securities in Toronto.
    Comments from Yellen that are expected to be dovish would
lead to U.S. dollar weakness, which should give the Canadian
dollar a tailwind, Tulk said.
    "That will be quickly offset by the Bank of Canada coming
out tomorrow where we think that they will look through some of
the recent acceleration in inflation to instead focus on some of
the downside risks to growth outlook," he said.
    The Canadian dollar was at C$1.0727 to the
greenback, or 93.22 U.S. cents, weaker than Monday's close of
C$1.0715, or 93.33 U.S. cents.
    Crude was down nearly a dollar at $99.98 a barrel on
weak demand and rising Libyan supplies, which overshadowed
violence in that country. 
    The loonie gained 1.6 percent through June in a rally fueled
by the stronger-than-expected inflation data, higher oil prices
and short-covering. But the currency's momentum stalled last
week as it was hit hard by a report that showed the economy lost
jobs in June.
    An accommodative tone from Yellen could push the loonie up
to C$1.0705, but if the Bank of Canada strikes a cautious tone,
as expected, that could send the currency back to the C$1.0750
area, Tulk said.
    Canadian government bond prices were mixed across the
maturity curve, with the two-year up 1 Canadian cent
to yield 1.094 percent, while the benchmark 10-year 
was unchanged to yield 2.216 percent.

 (Editing by Peter Galloway)
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