CANADA FX DEBT-C$ strengthens after central bank comments

Wed Feb 25, 2015 9:46am EST
 
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* Canadian dollar at C$1.2425 or 80.48 U.S. cents
    * Bond prices lower across the maturity curve

    By Andrea Hopkins
    TORONTO, Feb 25 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Wednesday after U.S. Federal
Reserve Chair Janet Yellen suggested on Tuesday the Fed is in no
rush to raise rates and markets scaled back expectations of
another rate cut by the Bank of Canada.
    "Obviously the last 24 hours or so have been a bit of a
perfect storm in terms of the comments we saw from the two
central bank governors in North America yesterday," said Jeremy
Stretch, head of foreign exchange strategy at CIBC World Markets
in London.
    The U.S. dollar dropped in the wake of Yellen's comments
that the Fed was preparing to consider rate hikes "on a
meeting-by-meeting basis" but would provide markets with clearer
signals before it moved. 
    The Canadian dollar strengthened on Tuesday after Bank of
Canada Governor Stephen Poloz said last month's surprise rate
cut bought the central bank time to see how the economy responds
to the plunge in crude oil prices. 
  
    At 9:28 a.m. (1428 GMT), the Canadian dollar was at
C$1.2425 to the U.S. dollar, or 80.48 U.S. cents. That was
higher than Tuesday's North American session close of C$1.2496
to the U.S. dollar, or 80.03 U.S. cents. It had strengthened as
much as C$1.2395 overnight, its strongest showing in a week. 
    Yellen's comments to the U.S. Senate Banking Committee
marked a subtle change in how the Fed speaks about its plans,
suggesting that although a hike could still come as early as
June, later is also possible in view of weak U.S. inflation and
a sluggish global economy. 
    Poloz said the Bank of Canada took out the right amount of
"insurance" when it cut rates by one-quarter percentage point
last month to protect the country's oil-exporting economy from
the impact of cheaper oil.
    That move blindsided markets, which are now pricing in about
a 70 percent chance of another cut next week, a lower
probability than before Poloz's comments.
    Still, Stretch said he wouldn't want to chase the
strengthening Canadian dollar much past C$1.24, given the risk
of renewed weakness in oil prices.
    Canadian government bond prices were lower across the
maturity curve. The two-year fell 4.5 Canadian cents
to yield 0.498 percent and the benchmark 10-year 
fell 61 Canadian cents to yield 1.387 percent.

 (Reporting by Andrea Hopkins; Editing by Peter Galloway)