Canada dollar weakens, bonds up after news Carney to quit BoC

Mon Nov 26, 2012 2:19pm EST
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By Alastair Sharp

TORONTO (Reuters) - The Canadian dollar weakened and bond prices rose on Monday as investors digested news that the governor of the Bank of Canada will leave his job next year to head Britain's central bank.

The decision by Governor Mark Carney to change jobs and uncertainty over who will replace him, and what monetary policy stance the replacement will bring, gave a boost to short-term debt prices as some traders bet his successor could be more dovish.

"The immediate reaction in the market was that rate hikes would get pushed out further that was evidenced by some price action in the front end of our curve," said Ian Pollick, a fixed income strategist at RBC Capital Markets. "But at this point it's a little too early to say."

At 12:59 a.m. the two-year bond had gained 5 Canadian cents to yield 1.10, down from 1.11 percent before the news. The yield had dipped 2 basis points immediately following the news before giving back some of the decline.

The Canadian dollar was trading at C$0.9938 to the greenback, or $1.0062, down from C$0.9920, or $1.0081, at Friday's North American close.

"(The Canadian dollar) has weakened off in light of some uncertainty as to who will head the Bank of Canada come June, 2013," said Camilla Sutton, chief currency strategist at Scotiabank.

"We are all well versed in where Governor Carney sat in terms of how he judged monetary policy and how he judged the fundamentals in Canada, and so having a new head of the central bank does introduce some uncertainty."

She noted that even though Carney had been discussed as a contender for Bank of England governor, most market players had discounted his candidacy and were surprised by the news.   Continued...

A man holds the new Canadian 100 dollar bills made of polymer in Toronto November 14, 2011. REUTERS/Mark Blinch