CANADA FX DEBT-C$ strengthens after neutral Bank of Canada

Wed Sep 3, 2014 12:09pm EDT
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* Canadian dollar at C$1.0875 or 91.95 U.S. cents
    * Bond prices mostly lower across the maturity curve

 (Adds details on Bank of Canada, quotes, updates prices)
    By Leah Schnurr
    TORONTO, Sept 3 (Reuters) - The Canadian dollar strengthened
against the greenback on Wednesday after the Bank of Canada
repeated its neutral policy stance, even as it highlighted new
concern over the stretched household sector.
    The loonie had already been trading higher heading into the
statement, benefiting from stronger risk appetite in broader
markets as investors were hopeful for a de-escalation of
tensions between Ukraine and Russia.
    But the currency extended gains to hit a session high
following the Bank of Canada statement, which analysts said was
slightly less dovish than expected. 
    "What we have is a fairly neutral statement overall," said
Camilla Sutton, chief currency strategist at Scotiabank in
    Without an accompanying press conference from Governor
Stephen Poloz, markets didn't get a chance to hear what is
usually a more dovish tilt from the head of the central bank,
said Sutton.
    The central bank's comments on the household sector also
grabbed the market's attention as it said the risks associated
with household imbalances have not diminished and dropped
previous references to the constructive evolution of household
imbalances and a soft landing in the housing market. 
    Those remarks could be interpreted as having a slightly
hawkish undertone, but shouldn't change the view on interest
rate policy, analysts said.
    "It does highlight that they are paying attention to those
financial stability risks but I think we're a long way from
actually threatening an interest rate hike on the back of them,"
said Sutton.
    "I think they're just highlighting them as a concern at this
point, but they do reemphasize that the balance of risks are
still within their comfort zone."
    The Canadian dollar was at C$1.0875 to the
greenback, or 91.95 U.S. cents, stronger than Tuesday's close of
C$1.0930, or 91.49 U.S. cents. The statement sent the currency
pairing through the 200-day moving average of C$1.0893, which
had been seen as near-term support.
    The loonie had gained alongside other asset classes after
Ukraine said its president had agreed with Russia's Vladimir
Putin on steps towards a "ceasefire regime" in Kiev's conflict
with pro-Russian rebels. Putin said a deal to end fighting in
eastern Ukraine could be reached this week. 
    The news was providing "a reason for this flight out of
safety and Canada is benefiting a bit," said Don Mikolich,
executive director of foreign exchange sales at CIBC World
Markets in Toronto.
    "I don't know if it's going to necessarily have a lasting
impact but it looks like the market was looking for a relief
from that." 
    Canadian government bond prices were mostly lower across the
maturity curve, though the two-year was unchanged to
yield 1.128 percent. The benchmark 10-year was down
12 Canadian cents to yield 2.107 percent.

 (Reporting by Leah Schnurr; Editing by Andrea Ricci)