CANADA FX DEBT-C$ sticks to range with inflation data in view

Thu Jul 17, 2014 9:53am EDT

* Canadian dollar at C$1.0738 or 93.13 U.S. cents
    * Bond prices higher across maturity curve

    By Leah Schnurr
    TORONTO, July 17 (Reuters) - The Canadian dollar was little
changed against the greenback on Thursday, consolidating ahead
of the release of domestic inflation data on Friday and
following an as-expected message from the Bank of Canada on
Wednesday.
    The central bank shrugged off a recent rise in inflation as
temporary and warned that the economy does not yet have enough
steam to grow without help. The bank also stuck to its neutral
policy stance, saying interest rate cuts are just as possible as
rate hikes. 
    Analysts said the bank's statement and subsequent remarks at
a news conference were largely in line with what the market had
expected, and that focus was turning to Friday's consumer price
index report for June. Annualized inflation is forecast to hold
at 2.3 percent for the month and core inflation to be at 1.7
percent. 
    "There is not much incentive for the market to push the
loonie much higher today, especially ahead of CPI tomorrow,"
said Martin Schwerdtfeger, FX strategist at TD Securities in
Toronto.
    The loonie rallied through much of June, partly due to the
recent surge in inflation as investors speculated about how the
central bank would address the rise after warning repeatedly
about a low inflation environment.
    But the Canadian dollar lost momentum last week, pulling
back after data showed the economy had unexpectedly lost jobs.
That left the loonie positioned for the Bank of Canada's
well-anticipated message on Wednesday, Schwerdtfeger said.
    "The move higher that U.S. dollar-Canadian dollar
experienced in the previous week perhaps had already factored in
what the market was expecting fully from the Bank of Canada," he
said. "So after the fact, there was no major new development and
that is why today we are seeing range trading."
    The Canadian dollar was at C$1.0738 to the
greenback, or 93.13 U.S. cents, slightly stronger than
Thursday's close of C$1.0746, or 93.06 U.S. cents.
    TD Securities forecasts a small decline in both overall and
core inflation for June, while an upside surprise "might trigger
some in the market to start wondering again whether the bank is
a bit behind," which could be a headwind for the currency
pairing, Schwerdtfeger said.
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 2-1/2 Canadian
cents to yield 1.077 percent and the benchmark 10-year
 up 25 Canadian cents to yield 2.172 percent.

 (Editing by Peter Galloway)
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