CANADA FX DEBT-C$ stays weaker against greenback after Bank of Canada keeps rates steady

Wed May 27, 2015 12:30pm EDT
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* Canadian dollar at C$1.2481, or 80.12 U.S. cents
    * Bond prices flat to higher across maturity curve

    By Alastair Sharp
    TORONTO, May 27 (Reuters) - The Canadian dollar stayed
weaker against the greenback after the Bank of Canada said on
Wednesday it is standing pat on interest rates even as the U.S.
Federal Reserve has been readying markets for a rate increase.
    Since breaking weaker than C$1.20 to the U.S. dollar earlier
in May, the loonie has steadily lost ground, and now threatens
to breach C$1.25, its lowest since mid-April.
    The Canadian dollar was at C$1.2481 to the U.S.
dollar, or 80.12 U.S. cents, late on Wednesday morning, weaker
than Tuesday's official close of C$1.2427, or 80.47 U.S. cents.
    The currency largely brushed off the Bank of Canada's
announcement that it will hold its benchmark rate steady. But
some analysts questioned whether economic recovery in the United
States will deliver the strong benefits to Canada that bank
Governor Stephen Poloz said he expects as exports rise.
    There is a not-trivial risk that growth will disappoint,
said Mazen Issa, a macro strategist at TD Securities.
    "We're not saying the bank is going to cut rates," he said.
"But they may be way too optimistic in the growth outlook for
the second half of the year." 
    The U.S. dollar has gained broadly this week as traders have
bet that a U.S. rate hike is pending amid a string of upbeat
economic data south of the border.
    Speaking ahead of the Canadian rate announcement, the head
of foreign exchange strategy at CIBC World Markets said some
bets against the loonie could be pulled back if Poloz again
pointed to economic recovery coming later of this year.
    But dips will be bought into, CIBC's Jeremy Stretch said,
because "underlying metrics still favor the U.S. both in terms
of growth and/or rate spreads."
    Canadian government bond prices were flat to higher across
the maturity curve, with the two-year unchanged to
yield 0.648 percent and the benchmark 10-year up 11
Canadian cents to yield 1.693 percent.
    The Canada-U.S. two-year bond spread was -1.2 basis points,
while the 10-year spread was -47.1 basis points.

 (Editing by Peter Galloway)