CANADA FX DEBT-C$ firms as Bank of Canada in focus, U.S. on holiday

Mon Jan 19, 2015 4:57pm EST
 
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(Adds fresh comment, closing figures)
    * Canadian dollar at C$1.1947 or 83.70 U.S. cents
    * Bond prices higher across the maturity curve

    By Solarina Ho
    TORONTO, Jan 19 (Reuters) - The Canadian dollar was stronger
against the greenback on Monday in quiet holiday trading, as
investors brushed off lower crude prices and cast their
attention toward the Bank of Canada's quarterly Monetary Policy
Report on Wednesday.
    Oil prices, which have dropped by about half since last June
on soaring output and slowing demand, fell on Monday on record
crude production from Iraq and a dimmer global economic outlook.
    Trading was thin, however, with U.S. markets closed for the
Martin Luther King Jr. holiday.
     "Very quiet and illiquid conditions today ... We're seeing
a bit of a divergence with the usual correlation between oil and
the loonie," said Scott Smith, senior market analyst at
Cambridge Mercantile Group in Calgary.
     "I think it's indicative of the price action that we saw on
Thursday and Friday, when we weren't able to take control of
that C$1.20 handle and trade above it with much conviction."
    Last week, the currency briefly touched new 5-1/2 year lows,
levels some forecasters had not expected until later this year.
    Smith said dips in the USD/CAD present good buying
opportunities and noted that some of the session's trading could
be attributed to market players covering weaker long positions.
    The Canadian dollar, which was outperforming most
of its currency counterparts, finished Monday at C$1.1947 to the
greenback, or 83.70 U.S. cents, stronger than Friday's close of
C$1.1968, or 83.56 U.S. cents.
    The Bank of Canada is set to deliver its latest interest
rate decision along with the policy report, which will provide
growth forecasts that many expect will be revised lower, driven
in part by cheap oil. The central bank has said the net impact
of crude will be negative for Canada, a major oil producer.
    "I think (Bank of Canada Deputy Governor Timothy) Lane laid
the framework in talking about oil prices staying low for a 
significant period of time," said Don Mikolich, executive
director, foreign exchange sales at CIBC World Markets. CIBC
does not expect the bank to raise rates until the first quarter
of next year.
    Job cuts announced last week by Target Corp, Sony Corp,
Suncor Energy and Bombardier Inc will likely weigh on the
outlook as well, Mikolich said.
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 3 Canadian cents
to yield 0.860 percent and the benchmark 10-year 
rising 20 Canadian cents to yield 1.517 percent.

 (Reporting by Solarina Ho; Editing by Peter Galloway and Phil
Berlowitz)