CANADA FX DEBT-C$ slightly weaker ahead of inflation data

Thu Jul 17, 2014 4:36pm EDT

* Canadian dollar at C$1.0758 or 92.95 U.S. cents
    * Bond prices higher across maturity curve

 (Adds details, quotes, updates prices)
    By Leah Schnurr
    TORONTO, July 17 (Reuters) - The Canadian dollar was
marginally weaker against the greenback on Thursday as news that
a Malaysian airliner was brought down over eastern Ukraine
rattled markets, and as investors consolidated positions a day
ahead of the release of domestic inflation data. 
    Raising the stakes in a conflict between Kiev and pro-Moscow
rebels, Ukraine accused militants of shooting down the Malaysia
Airlines flight, killing all 295 people aboard. 
    The loonie had already been trading in a tight range when
the news broke. The downing of the aircraft did not encourage
risk-taking and left investors cautious.
    "The foreign exchange market reaction has been fairly muted.
    Ordinarily, in this sort of situation you can get in an
environment where you buy the rumor, sell the fact," said Gareth
Sylvester, director at Klarity FX in San Francisco.
    "Perhaps traders may be taking a step back and saying, 'Lets
not be too hasty, lets just see how things develop over the next
few hours, the next day or two, and then we'll make a decision
on how we should be positioned.'" 
    The Canadian dollar ended the North American
session at C$1.0758 to the greenback, or 92.95 U.S. cents,
slightly weaker than Thursday's close of C$1.0746, or 93.06 U.S.
cents.
    The loonie was also consolidating following an 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 the 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. 
    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.
    TD Securities forecasts a small decline in overall inflation
for June, but 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,
said Martin Schwerdtfeger, FX strategist at TD Securities in
Toronto.
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 4 Canadian cents
to yield 1.070 percent and the benchmark 10-year up
50 Canadian cents to yield 2.144 percent.

 (Additional reporting by John Tilak; Editing by Jonathan Oatis)
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