CANADA FX DEBT-C$ weaker as Carney says rate move less imminent

Wed Oct 24, 2012 1:53pm EDT
 
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* C$ at C$0.9940 versus US$, or $1.0060
    * C$ slides on comment by Bank of Canada head
    * Global growth worries add to C$ weakness

    By Alastair Sharp
    TORONTO, Oct 24 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Wednesday after the head of the
Bank of Canada said the case for raising interest rates was less
imminent.
    The currency hit a session low after the central bank's
governor, Mark Carney, said the bank was more cautious about an
eventual rate rise given weak third-quarter growth and slack in
the economy. 
    Canada's dollar had hit its strongest level since last
Friday earlier in the session as traders cheered the bank's
decision on Tuesday to retain hawkish language in its
rate-setting statement. 
    The bank's tightening stance contrasts sharply with the
monetary easing on offer in the United States and most other
developed economies.
    But Carney's comment qualifying the central bank's view
quickly knocked the currency lower.
    "We've taken back some of the impact we had yesterday," said
Mark Chandler, head of Canadian fixed income and currency
strategy at Royal Bank of Canada. 
    "It was basically off of comments which the market took to
heart today but really wasn't much different from what the bank
had talked about before, that rate hikes weren't imminent," he
said.
    At 1:40 p.m. (1740 GMT) the Canadian dollar was
trading at C$0.9940 to the greenback, or $1.0060, compared with
C$0.9927, or $1.0074, at Tuesday's North American close. The
currency at one point hit a session low of C$0.9956.
    Overnight index swaps, which trade based on expectations for
the central bank's key policy rate, showed that after the report
and Carney's comments traders scaled back bets on a rate hike in
late 2013. 
    
    RATE RISE "FANTASY"
    "Anyone who expects the Bank of Canada to be raising rates
in the next six or twelve months is living in a fantasy land,"
said David Bradley, director of foreign exchange trading at
Scotiabank.
    The Canadian dollar's weakness was compounded by signs that
the euro zone is heading for a deeper recession than previously
feared. This contributed to a broader rise in the safe-haven
greenback against most major currencies.  
    The Canadian dollar held onto slight gains versus the euro
, but turned weaker against the Japanese yen,
the British pound and the Australian dollar,
which was helped by signs China is making a slow, steady
recovery. 
    Short-term Canadian government debt prices received a boost
from Carney's comments, with the two-year bond adding
5 Canadian cents to yield 1.121 percent. The benchmark 10-year
bond gained 9 Canadian cents to yield 1.841 percent.