CANADA FX DEBT-C$ closes slightly weaker; eye on BoC

Mon Jun 4, 2012 4:54pm EDT
 
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* C$ ends at $1.0397 vs US$, or 96.18 U.S. cents
    * Hits six-month low overnight
    * Traders eye Tuesday's BoC policy meetings
    * Bond prices mostly lower

    By Allison Martell	
    TORONTO, June 4 (Reuters) - Canada's dollar touched a
six-month low and ended slightly weaker against its U.S.
counterpart on Monday, with investors nervous about Europe's
debt crisis and the outcome of the Bank of Canada's interest
rate announcement on Tuesday.	
    The Bank of Canada is widely expected to keep interest rates
on hold given fears about the euro zone's debt woes and signs of
weaker global growth. But traders were trying to gauge how much
the central bank will tone down the hawkish language it used in
April.    	
    "The market's very nervous about the Bank of Canada
tomorrow," said Steve Butler, director of foreign exchange
trading at Scotiabank.	
    "Last time they came out and they surprised everybody with
some hawkish rhetoric, and I think the market's very concerned
that tomorrow morning we may see the exact opposite, and the
Bank may have to reverse their stance."	
    The prospect of higher interest rates tends to help
currencies strengthen by attracting international currency
flows. The Bank of Canada's main policy rate has been at 1
percent since September 2010.	
    "We've seen a fair bit of back and forth movement in the
currency," said Matt Perrier, director of foreign exchange sales
at BMO Capital Markets.	
    "I think we'll stick to a fairly tight range here overnight,
the C$1.0380-C$1.0425 area, as we head into the Bank of Canada
announcement."    	
    The currency closed at C$1.0397, versus the U.S. dollar, or
96.18 U.S. cents, down from Friday's close at C$1.0394 versus
the greenback, or 96.21 U.S. cents.	
    The currency at one point hit C$1.0446, its weakest level
since late November.	
    The Canadian dollar is likely to trade in a range of
C$1.0350 to C$1.0450 until events later in the week provide
further clarity, said Shaun Osborne, chief currency strategist
at TD Securities.	
    Investors are also waiting to see if policy meetings by the
European Central Bank and the Bank of England this week will
produce any sign that another wave of easing is likely.	
    On Thursday, U.S. Federal Reserve Chairman Ben Bernanke
testifies before a congressional committee about the U.S.
economy, which could offer more clues about possible policy
shifts.	
    Canadian government bond yields were mostly higher on Monday
after hitting record lows at the long end of the curve on
Friday.	
    Canada's benchmark 10-year bond fell 51 Canadian
cents to yield 1.686 percent, after hitting a record low of
1.615 percent at the end of last week. The two-year bond
 dropped 21 Canadian cents to yield 0.979 percent.