CANADA FX DEBT-C$ weakens, bonds up after news Carney to quit BoC

Mon Nov 26, 2012 2:18pm EST
 
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* C$ at C$0.9938 to US$, or $1.0062
    * Bank of Canada chief Carney to take Bank of England job
    * Speculation rate hikes will be pushed out boosts debt
    * Greek deal expected; disappointment could roil markets
    * Stalled U.S. budget discussions also weigh

    By Alastair Sharp
    TORONTO, Nov 26 (Reuters) - The Canadian dollar weakened and
bond prices rose on Monday as investors digested news that the
governor of the Bank of Canada will leave his job next year to
head Britain's central bank.
    The decision by Governor Mark Carney to change jobs and
uncertainty over who will replace him, and what monetary policy
stance the replacement will bring, gave a boost to short-term
debt prices as some traders bet his successor could be more
dovish.
      "The immediate reaction in the market was that rate hikes
would get pushed out further that was evidenced by some price
action in the front end of our curve," said Ian Pollick, a fixed
income strategist at RBC Capital Markets. "But at this point
it's a little too early to say."
    At 12:59 a.m. (1759 GMT) the two-year bond had
gained 5 Canadian cents to yield 1.10, down from 1.11 percent
before the news. The yield had dipped 2 basis points immediately
following the news before giving back some of the decline.
    The Canadian dollar was trading at C$0.9938 to the
greenback, or $1.0062, down from C$0.9920, or $1.0081, at
Friday's North American close.
    "(The Canadian dollar) has weakened off in light of some
uncertainty as to who will head the Bank of Canada come June,
2013," said Camilla Sutton, chief currency strategist at
Scotiabank.
    "We are all well versed in where Governor Carney sat in
terms of how he judged monetary policy and how he judged the
fundamentals in Canada, and so having a new head of the central
bank does introduce some uncertainty."
    She noted that even though Carney had been discussed as a
contender for Bank of England governor, most market players had
discounted his candidacy and were surprised by the news.
    Under Carney, the Bank of Canada has held rates steady for
two years, and - unusual among major economies - was talking up
an eventual raising of rates.  
    Traders were also awaiting the results of Greek debt aid
talks on Monday and continued to fret that pending U.S. tax
hikes and spending cuts could spur a recession unless action is
taken to blunt them.
    Euro zone finance ministers and the International Monetary
Fund were attempting to release emergency aid for Greece for the
third time in as many weeks, but they first had to agree if some
of the official loans to Athens might eventually be forgiven to
cut Greek debt. 
    "The market is probably set up for something fairly decisive
today (on Greece)," said Adam Cole, global head of FX strategy
at RBC Capital Markets in London. "If they fail to agree yet
again it could be quite violently negative."
    U.S. lawmakers have made little progress in the past 10 days
toward a compromise to avoid the "fiscal cliff" of harsh tax
increases and government spending cuts due to start to kick in
in the new year, a senior Democratic senator said on Sunday.