CANADA FX DEBT-C$ softens to 2-week low in wake of Bank of Canada shift

Thu Oct 24, 2013 9:50am EDT
 
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* C$ at C$1.0409 vs US$, or 96.07 U.S. cents
    * Markets continue to absorb Bank of Canada language shift
    * Canadian bond prices higher across the curve

    By Leah Schnurr
    TORONTO, Oct 24 (Reuters) - The Canadian dollar slid to a
two-week low on Thursday after a policy shift by the country's
central bank on Wednesday fueled expectations that interest
rates will stay low for longer than had been anticipated.
    Highlighting weaker-than-expected growth and inflation, the
Bank of Canada on Wednesday dropped any mention of eventual rate
increases from its latest policy statement after more than a
year of warning that rates will one day have to rise.
 
    The central bank has kept rates at 1 percent since 2010, and
analysts said the removal of the Bank of Canada's rate-rise bias
represented a more neutral tone for policy.
    "It was a pretty notable shift in the Bank of Canada's
message, so it's taken a couple sessions to fully digest that
news," said Greg Moore, FX strategist at TD Securities in
Toronto.
    Overnight index swaps, which trade based on expectations for
the central bank's policy rate, showed that after the Bank's
statement, traders slashed bets that rates will rise late next
year and priced in a small chance of a cut before then.
 
    The Canadian dollar was at C$1.0409 versus the
greenback, or 96.07 U.S. cents, weaker than Wednesday's close of
C$1.0384, or 96.30 U.S. cents. The loonie earlier hit a session
low of C$1.04018.
    Economic data overseas had little impact on the Canadian
dollar as reports showed a gauge of Chinese manufacturing rose
to a seven-month high in October, while the euro zone economy
was expanding only slowly. 
    "None of that really changes the bigger picture at the
moment," Moore said, noting investors also remained focused on
the monetary policy path for the Federal Reserve.
    A disappointing U.S. jobs report released earlier this week
reaffirmed analysts' view that the Fed may wait until next year
before reducing the pace of its economic stimulus program.
    Canadian government bond prices were higher across the
maturity curve. The two-year bond was up 3.7 Canadian
cents to yield 1.090 percent and the benchmark 10-year bond
 gained 26 Canadian cents to yield 2.402 percent.