CANADA FX DEBT-C$ inches toward parity ahead of rate decision

Tue Oct 23, 2012 7:57am EDT
 
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* C$ at C$0.9968 versus the US$, or $1.0032
    * Caution evident of a Bank of Canada rate decision
    * Lower global shares, commodity prices also weigh

    By Alastair Sharp
    TORONTO, Oct 23 (Reuters) - The Canadian dollar edged closer
to parity with its U.S. counterpart on Tuesday, with caution
evident ahead of a Bank of Canada rate decision that will be
closely watched for any shift from a hawkish bias.
    Global shares and commodity prices were also broadly lower,
helping to weigh on the currency, which is acutely sensitive to
the global growth outlook.
    At 7:51 a.m. (1151 GMT) the Canadian dollar was
trading at C$0.9968 to the greenback, or $1.0032, compared with
C$0.9926, or $1.0075, at Monday's North American close.
    "It's vulnerable here," said Mark Chandler, head of Canadian
fixed income and currency strategy at Royal Bank of Canada. "A
dovish tone, which we expect to see out of the rate statement at
9 a.m, should be enough to weaken off the Canadian dollar."
    The governor of the central bank gave a speech last Monday
that omitted any reference to the withdrawal of "considerable
monetary stimulus" and the currency has weakened since then.
    A Reuters poll conducted after the speech showed that market
forecasters now expect any hike to be pushed out to the fourth
quarter of next year, and for the bank to water down its hawkish
language. None expect a rate change in Tuesday's statement.
 
    Highlighting the lack of conviction, prices of safe haven
government debt rose across the curve.
    The two-year bond was up 3 Canadian cents to
yield 1.080 percent, while the benchmark 10-year bond
 rose 35 Canadian cents to yield 1.834 percent.