CANADA FX DEBT-C$ weakens as investors mull central bank policies
* Canadian dollar at C$1.0981 or 91.07 U.S. cents * Bond prices higher across the maturity curve (Adds analyst quotes, updates prices) By Leah Schnurr TORONTO, Aug 25 (Reuters) - The Canadian dollar weakened against the greenback on Monday, hurt by concerns that diverging paths for central bank policy could leave the Bank of Canada on the sidelines even when the Federal Reserve ultimately starts raising rates. On the economic front, the loonie had few catalysts, with no domestic data on the docket until Friday's gross domestic product report. Analysts are forecasting the economy likely bounced back in the second quarter after being hit by unusually severe winter weather in the first three months of the year. But the market took its cue from comments made by Bank of Canada Governor Stephen Poloz in Jackson Hole, Wyoming over the weekend. Poloz said the Bank of Canada will not necessarily immediately follow the United States when the Fed starts hiking rates, the Globe and Mail reported. "A lot of the conversations after the Jackson Hole summit, coupled with Poloz at the same venue, really were highlighting the increasingly hawkish Federal Reserve and persistently dovish Bank of Canada," said Don Mikolich, executive director of foreign exchange sales at CIBC World Markets in Toronto. Analysts expect the Bank of Canada won't raise rates until the third quarter of next year, a Reuters poll conducted last month found. At the same time, there has generally been the view that Canadian monetary policy will follow that of the United States. Poloz's comments "suggest they're not going to be as tightly linked to the policy outlook in the U.S. as some people currently think they will be," said Shaun Osborne, chief currency strategist at TD Securities in Toronto. "He's trying to draw perhaps a little more blue sky between the policy outlook in the U.S. and that of Canada," Osborne said. The Canadian dollar ended the North American session not far from the day's lows at C$1.0981 to the greenback, or 91.07 U.S. cents, weaker than Friday's close of C$1.0945, or 91.37 U.S. cents. Speaking at the annual meeting of policymakers and economists in Jackson Hole, Fed Chair Yellen said last week the central bank should move cautiously in deciding when to raise rates, even as a number of top Fed officials pressed their case for an early hike. The Canadian dollar has traded within a range since the end of July but is approaching the upper end of that band, with analysts watching to see if it will test resistance at C$1.10. With the potential for thinner trading with some investors away for the last week of August, and little domestic data on tap, the currency pairing could have room to get up to C$1.1055, said CIBC World Markets' Mikolich. Canadian government bond prices were higher across the maturity curve, with the two-year up 1 Canadian cent to yield 1.089 percent and the benchmark 10-year up 27 Canadian cents to yield 2.046 percent. (Editing by Grant McCool)
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