CANADA FX DEBT-C$ strengthens after Bank of Canada stays neutral
* Canadian dollar at C$1.0888 or 91.84 U.S. cents * Bond prices higher across the maturity curve (Adds 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 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. The currency extended gains to hit a session high following the Bank of Canada statement, which analysts said was slightly less dovish than expected. The bank said recent data reinforced the view that higher inflation was due to temporary effects and said that an increasing number of export sectors appeared to be turning the corner. "I think essentially what the Bank of Canada is saying is we're moving along a path that we have always envisioned and forecasted," said Rahim Madhavji, president at KnightsbridgeFX.com in Toronto. "Overall, it's just slightly more optimistic than what was expected and that's driven the Canadian dollar higher." 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 it 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 should not 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 Camilla Sutton, chief currency strategist at Scotiabank in Toronto. "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 ended the North American session at C$1.0888 to the greenback, or 91.84 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$1.0894, which had been seen as near-term support. The loonie has seen some choppy trading in recent sessions following a large one-day gain last week due to fund flow speculation stemming from Burger King's bid to buy Tim Hortons. The currency is likely to oscillate around the C$1.09 mark, Madhavji said. "It seems like the loonie is quite comfortable between C$1.08 and C$1.10, it really doesn't want to break any of the barriers on either side," he said. Canadian government bond prices were higher across the maturity curve, with the two-year up 1-1/2 Canadian cents to yield 1.120 percent, and the benchmark 10-year up 7 Canadian cents to yield 2.086 percent. (Editing by Leslie Adler)
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