CANADA FX DEBT-C$ advances after Bank of Canada keeps rates steady

Wed Mar 4, 2015 11:05am EST
 
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(Adds market reaction, comments and details)
    * Canadian dollar at C$1.2455 or 80.29 U.S. cents
    * Bond prices fall across the maturity curve

    By Solarina Ho
    TORONTO, March 4 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Wednesday after the
Bank of Canada kept interest rates steady and said it was
satisfied with how the market and the economy  reacted to its
surprise rate cut in January.
    The bank kept its benchmark overnight interest rate at 0.75
percent and said that the risks around inflation were more
balanced following its unexpected 25 basis point rate cut in
January. 
    The market had expected the central bank to keep rates
steady for now and was looking for clues on whether a rate cut
might be expected in the near future.
    Before the bank's announcement on Wednesday, the market had
pricing in about a 60 percent chance of a rate cut in April.
After the bank's the bank's comments about the economy, those
expectations were scaled back to about 25 percent. 
    The bank said in January it expects economic growth of 1.5
percent in the first half of 2015 and did not change that
forecast on Wednesday.
    "For them to cut any further you'd have to see growth
showing downside surprise relative to 1.5 percent growth," said
Craig Wright, chief economist at Royal Bank of Canada.
    "We think growth will be a bit better than that. If our
growth forecast is correct, then they won't need to go any
further."
    At 10:32 a.m. (1532 GMT), the Canadian dollar was
at C$1.2455 to the greenback, or 80.29 U.S. cents, stronger than
Tuesday's finish of C$1.2490, or 80.06 U.S. cents.
    Canada is a major oil producer and currency strategists are
still calling for a weaker Canadian dollar, linked to low oil
prices, in coming months, according to a Reuters poll released
before the bank's statement. 
    "We still see some risks to the downside for oil," Wright
said. "So I think alongside of that, alongside a U.S. dollar
recovery and alongside the Fed liftoff (on higher interest
rates) that we expect in June, that all suggests we should see a
continued weakness in the Canadian dollar in the near term." 
    Canadian government bond prices were lower across the
maturity curve. The two-year fell 25.5 Canadian cents
to yield 0.0.632 percent and the benchmark 10-year 
fell 99 Canadian cents to yield 1.524 percent. Both yields were
at its highest levels since around mid-January.

 (Additional reporting by Alastair Sharp; Editing by Nick
Zieminski and Peter Galloway)