CANADA FX DEBT-C$ weakens as investors mull central bank policies

Mon Aug 25, 2014 4:33pm EDT

* Canadian dollar at C$1.0981 or 91.07 U.S. cents
    * Bond prices higher across the maturity curve

 (Adds analyst quotes, updates prices)
    By Leah Schnurr
    TORONTO, Aug 25 (Reuters) - The Canadian dollar weakened
against the greenback on Monday, hurt by concerns that diverging
paths for central bank policy could leave the Bank of Canada on
the sidelines even when the Federal Reserve ultimately starts
raising rates.
    On the economic front, the loonie had few catalysts, with no
domestic data on the docket until Friday's gross domestic
product report. Analysts are forecasting the economy likely
bounced back in the second quarter after being hit by unusually
severe winter weather in the first three months of the year.
    But the market took its cue from comments made by Bank of
Canada Governor Stephen Poloz in Jackson Hole, Wyoming over the
weekend. Poloz said the Bank of Canada will not necessarily
immediately follow the United States when the Fed starts hiking
rates, the Globe and Mail reported.
    "A lot of the conversations after the Jackson Hole summit,
coupled with Poloz at the same venue, really were highlighting
the increasingly hawkish Federal Reserve and persistently dovish
Bank of Canada," said Don Mikolich, executive director of
foreign exchange sales at CIBC World Markets in Toronto.
    Analysts expect the Bank of Canada won't raise rates until
the third quarter of next year, a Reuters poll conducted last
month found. At the same time, there has generally been the view
that Canadian monetary policy will follow that of the United
States. 
    Poloz's comments "suggest they're not going to be as tightly
linked to the policy outlook in the U.S. as some people
currently think they will be," said Shaun Osborne, chief
currency strategist at TD Securities in Toronto.
    "He's trying to draw perhaps a little more blue sky between
the policy outlook in the U.S. and that of Canada," Osborne
said.
    The Canadian dollar ended the North American
session not far from the day's lows at C$1.0981 to the
greenback, or 91.07 U.S. cents, weaker than Friday's close of
C$1.0945, or 91.37 U.S. cents.
    Speaking at the annual meeting of policymakers and
economists in Jackson Hole, Fed Chair Yellen said last week the
central bank should move cautiously in deciding when to raise
rates, even as a number of top Fed officials pressed their case
for an early hike. 
    The Canadian dollar has traded within a range since the end
of July but is approaching the upper end of that band, with
analysts watching to see if it will test resistance at C$1.10.
    With the potential for thinner trading with some investors
away for the last week of August, and little domestic data on
tap, the currency pairing could have room to get up to C$1.1055,
said CIBC World Markets' Mikolich.
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 1 Canadian cent
to yield 1.089 percent and the benchmark 10-year up
27 Canadian cents to yield 2.046 percent.

 (Editing by Grant McCool)
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