CANADA FX DEBT-C$ ends little changed despite Carney speech

Mon Oct 15, 2012 4:43pm EDT
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* C$ ends little changed at C$0.9800 versus US$, or $1.0204
    * Subtle shift in Carney's stance lifts bond market's short
    * C$ recovers ground after early weakness

    By Andrea Hopkins
    TORONTO, Oct 15 (Reuters) - The Canadian dollar ended little
changed against the U.S. currency on Monday as an improving
appetite for risk offset a weak business outlook, with the
market largely shrugging off a speech by Bank of Canada Governor
Mark Carney that suggested a slight shift in tone on monetary
    Carney said the Bank of Canada would do whatever is
necessary to stick to its 2 percent inflation target. But he
made no mention of the possibility of interest rate hikes, a
mainstay in many previous speeches. [ID: nBCLFLE82U]
    Analysts said the omission of the bank's stock phrase about
the need to remove monetary policy stimulus could indicate a
more neutral policy stance, and the shift gave bonds a boost at
the short end.
    "I think the markets interpret that as more of a shift to a
neutral assessment for the outlook, so ... (that's) given us
some indication at least that it's a little bit more of a
balanced outlook for policy," said David Tulk, chief Canada
macro strategist at TD Securities.
    The Canadian dollar ended the North American
session at C$0.9800 to the U.S. dollar, or $1.0204, barely
changed from Friday's session close of C$0.9793, or $1.0211.
    Earlier in the day, a weak headline number in the Bank of
Canada business outlook survey pushed the currency lower, but it
bounced back as risk appetite improved on stronger international
economic data.
    In its outlook survey, the central bank said Canadian
business sentiment worsened in the third quarter due to the
uncertain global economy, and investment intentions fell to a
three-year low at a time when policymakers are prodding
companies to put their cash to productive use. [ID: nL1E8LF6KO]
    But international news was better. Global stocks rose on
upbeat U.S. data and earnings and on bets that Spain was close
to asking for a euro zone bailout, although the lack of details
on Madrid's next actions pressured the euro. 
    Analysts said it was surprising that the Canadian currency
was so quiet in the face of the perceived shift by the Bank of
Canada as well as the global news. They said it is evidence that
it will take something more dramatic to bump the Canadian dollar
out of its recent range.
    "Markets don't tend to react to headlines like they did in
the past," said David Bradley, director of foreign exchange
trading at Scotiabank.
    The government bond market, however, took some direction
from Carney's speech, with the short end given a lift by the
suggestion of a more neutral tone.
     The two-year bond gained 11 Canadian cents to
yield 1.090 percent, while the benchmark 10-year bond
 was unchanged to yield 1.800 percent. Longer-term
bonds slipped.