CANADA FX DEBT-C$ firms on euro zone hopes, eye on BoC

Mon Jun 4, 2012 8:58am EDT
 
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* C$ at C$1.0387 vs US$, or 96.27 U.S. cents
    * Trade thin ahead of ECB, BoC policy meetings
    * Bond prices mostly lower

    By Jon Cook	
    TORONTO, June 4 (Reuters) - Canada's dollar firmed slightly
against its U.S. counterpart on Monday on signs that a drive by
Europe's leaders to tackle the region's debt crisis was
gathering momentum, offsetting global slowdown fears stoked by
last week's disappointing data.	
    Investors are waiting to see if policy meetings by the
European Central Bank (ECB) and the Bank of England this week
will produce any sign that another wave of easing is likely
given the weaker-than-expected economic data. 	
    "As a consequence of that we're seeing risk appetite holding
up relatively well and that's providing a little bit of impetus
for those currencies that are risk correlated," said Jeremy
Stretch, head of foreign exchange strategy at CIBC World Markets
in London.	
    Figures on Monday showing euro zone factory prices were
unexpectedly stable in April from March, the fourth straight
month of weakening inflation pressures, offered some hope that
ECB could cut rates. 	
    At 8:06 a.m. (1206 GMT), the Canadian dollar was at
C$1.0387, versus the U.S. dollar, or 96.27 U.S. cents, up
slightly from Friday's close at C$1.0394 versus the greenback,
or 96.21 U.S. cents.	
    In Canada, investors were in a wait-and-see mode ahead of
the Bank of Canada's next interest rate announcement on Tuesday.
Canada's central bank may signal it is more reluctant to raise
interest rates than it was seven weeks ago, without completely
reversing its message that Canadians should start preparing for
higher borrowing costs down the road. 	
    The Bank of Canada's main policy rate has been at 1 percent
since September 2010.	
    "It's not that surprising if people are going to be fighting
shy of Canadian dollar positions over the next 24 hours until
the smoke clears a bit in terms of whether the bank is viewing
the externalities as being more pronounced or less pronounced,"
said Stretch, who saw the currency hovering in a range of
C$1.035 to C$1.04.	
    The commodity-linked currency was also hurt by data on
Friday that showed the Canadian economy grew less in the first
quarter than the Bank of Canada had expected.   	
    Following Friday's weak global data, traders raised bets of
a Bank of Canada interest rate cut by the end of the year.
 	
    With the euro zone set to dominate the agenda in the early
part of the week, more insight on potential monetary stimulus is
expected from Wednesday's European Central Bank meeting, with
markets positioning for an outside chance of an interest rate
cut.	
    On Thursday, Fed chief Ben Bernanke testifies before a
congressional committee about the U.S. economy, which could
offer more clues to possible policy shifts on the other side of
the Atlantic.	
    Canadian government bond prices were mostly lower and yields
rose after hitting record lows at the long end of the curve on
Friday.	
    Canada's benchmark 10-year bond fell 26 Canadian
cents to yield 1.66 percent, after hitting a record trough of
1.615 percent at the end of last week. The two-year bond
 dropped 7 Canadian cents to yield 0.916 percent,
after touching 0.863 percent on Friday.