CANADA FX DEBT-C$ weaker on China worries, Bank of Canada in focus

Wed Oct 23, 2013 9:23am EDT
 
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* C$ at C$1.0323 vs US$, or 96.87 U.S. cents
    * Worries about tightening in China hit loonie
    * Bank of Canada rate decision due at 10:00 am ET (1400 GMT
    * Bond prices higher across maturity curve

    By Leah Schnurr
    TORONTO, Oct 23 (Reuters) - The Canadian dollar weakened on
Wednesday on worries over tightening financial conditions in
China and as investors were cautious ahead of a monetary policy
decision from the Bank of Canada later in the morning.
    China's primary short-term money rates rose after a policy
adviser to the People's Bank of China said on Tuesday that the
central bank may tighten cash conditions in the financial system
to address inflation risks. 
    Investors are worried tightening could hamper growth in
China, the world's second-largest economy and a major consumer
of commodities.
    China's economy grew at its quickest pace this year in the
third quarter in a rebound fueled largely by investment,
although signs were already emerging that the pick up in
activity may lose some steam. 
    "Worries about tightening there clearly is a negative for
commodities, which in turn is a negative for the Canadian
dollar," said Benjamin Reitzes, senior economist and foreign
exchange strategist at BMO Capital Markets.
    The Canadian dollar was at C$1.0323 versus the
greenback, or 96.87 U.S. cents, weaker than Tuesday's close of
C$1.0289, or 97.19 U.S. cents. 
    Investors were also awaiting an interest rate decision and
statement from the Bank of Canada. The central bank is expected
to keep rates steady at 1 percent. 
    The accompanying statement and subsequent press conference
from Governor Stephen Poloz will be bigger focal points, with
investors sensitive to any change in tone that might indicate
when the Bank will eventually raise rates. 
    Analysts are also looking for the central bank's view on the
economic outlook for both Canada and the United States. In a
speech earlier this month, Senior Deputy Governor Tiff Macklem
said the central bank expects lower growth in the third quarter
than had been previously forecast.
    "We've already heard they're going to cut their forecast, so
that's not going to be a surprise when they cut their near-term
forecast," said Reitzes. "What they do with the rest of 2014
beyond the first quarter and 2015 is a bit of a question mark."
    Government bond prices were higher across the maturity curve
with the two-year bond up 2-1/2 Canadian cents to
yield 1.156 percent and the benchmark 10-year bond 
up 19 Canadian cents to yield 2.459 percent.