CANADA FX DEBT-C$ weak ahead of Bank of Canada news; ECB eyed

Tue Jun 3, 2014 4:49pm EDT
 
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article
[-] Text [+]

* Canadian dollar at C$1.0910 or 91.66 U.S. cents
    * Bond prices lower across the maturity curve

    By Alastair Sharp
    TORONTO, June 3 (Reuters) - The Canadian dollar weakened
against the greenback on Tuesday as the market braced for a slew
of potentially jarring events and economic data, including a
Bank of Canada policy decision on Wednesday.
    On Thursday, the European Central Bank is likely to act to
try to stimulate the common market's economy and stave off
deflation. 
    Jobs data for both Canada and its main trading partner, the
United States, are due on Friday.
    "There's a lot of waiting on the Bank (of Canada), there's a
lot of waiting on the ECB, and then the North American
employment reports on Friday," said Darcy Browne, managing
director of foreign exchange sales at CIBC World Markets.
    In Canada, the central bank shifted to a neutral policy
stance late last year as it cited a weak inflation environment,
a move that has weighed on the loonie.
    A pickup in the domestic inflation rate in April, however,
had stoked some speculation that the bank could be ready
moderate its dovish tone, but disappointing economic growth
figures for the first quarter released last week have deflated
those expectations.
    "The Bank of Canada's hands are tied. They're not cutting
rates, and they're not hiking," Browne said. "It's just the
status quo of (Governor Stephen) Poloz trying to keep this
rhetoric alive and the Canadian dollar weaker."
    A weak currency would normally stimulate Canadian exports,
which is a development the central bank has been waiting for.
    A Reuters poll released on May 29 showed a majority of
analysts expect rates to be held steady until mid-2015, with
most forecasting an eventual hike. 
    "The first-quarter GDP data in our view gives them a little
bit more wiggle room to still sound fairly cautious," said David
Tulk, chief Canada macro strategist at TD Securities in Toronto.
    "If anything, maybe some of the weakness that we have seen
in the Canadian dollar over the last couple of days is in
recognition that the Bank of Canada does not have to
specifically reference some of the inflation strength, they can
still hide behind the weaker growth story."
    The Canadian dollar ended the session at C$1.0910
to the greenback, or 91.66 U.S. cents, weaker than Monday's
close of C$1.0898, or 91.76 U.S. cents.
    The loonie has been stuck in a narrow trading range in
recent weeks, but Monday's drop brought it close to breaking out
of that band. A close above C$1.0930 would have set the currency
up for further declines, said Tulk, while CIBC's Browne looked
to C$1.0940 as a gateway to further upside in the pair.
    Canadian government bond prices were lower across the
maturity curve, with the two-year down 2 Canadian
cents to yield 1.074 percent and the benchmark 10-year
 down 55 Canadian cents to yield 2.341 percent.

 (Additional reporting by Leah Schnurr; Editing by Meredith
Mazzilli; and Peter Galloway)