CANADA FX DEBT-C$ recovers from 3-week low after Bank of Canada rate decision

Wed Jul 16, 2014 2:36pm EDT

* Canadian dollar at C$1.0746 or 93.06 U.S. cents
    * Bond prices higher across the maturity curve

 (Adds details on Bank of Canada, quotes, updates prices)
    By Leah Schnurr
    TORONTO, July 16 (Reuters) - The Canadian dollar firmed
modestly against the greenback on Wednesday after the Bank of
Canada stayed neutral on the next move for interest rates in a
statement that was not as dovish as some in the market had
feared it could be.
    The central bank shrugged off a recent surge in inflation as
temporary and reiterated it could just as easily cut rates as
raise them. The Bank of Canada also held rates at 1 percent as
had been widely expected. 
    The announcement from the central bank was the key domestic
event of the week and had been much anticipated by investors
wanting to see how the policymakers would address the
surprisingly strong inflation data released last month.
    While the statement initially sent the loonie to a more than
three-week low, the currency managed to reverse course by
midday. 
    "On balance, the statement announcement came out pretty much
as expected," said Scott Smith, senior market analyst at
Cambridge Mercantile Group in Calgary.
    The Bank of Canada shifted policy gears last October when it
dropped any mention of tightening on the horizon. Since then,
the central bank has said it holds a neutral stance, though some
in the market have viewed it as tilting toward dovish.
    "I think they've dropped that dovish tinge to where we would
put them on the spectrum and now are firmly in the neutral
category," said Smith.
    The Canadian dollar was at C$1.0746 to the
greenback, or 93.06 U.S. cents, slightly stronger than Tuesday's
close of C$1.0758, or 92.95 U.S. cents.
    The loonie saw little reaction to data earlier on Wednesday
that showed the value of Canadian factory sales jumped by 1.6
percent in May, more than economists had expected.
 
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 2.2 Canadian
cents to yield 1.088 percent and the benchmark 10-year
 up 16 Canadian cents to yield 2.197 percent.

 (Editing by Meredith Mazzilli)
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