CANADA FX DEBT-C$ weaker after Bank of Canada holds rates steady

Wed May 27, 2015 4:33pm EDT
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* Canadian dollar at C$1.2459, or 80.26 U.S. cents
    * Bond prices flat to higher across maturity curve

 (Updates to close)
    By Alastair Sharp
    TORONTO, May 27 (Reuters) - The Canadian dollar regained a
little ground against the greenback on Wednesday but still ended
the day weaker after the Bank of Canada said it is standing pat
on interest rates, a stance that contrasts with the U.S. Federal
Reserve's moves to ready markets for a possible 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, which would be its lowest since mid-April.
    The Canadian dollar ended the North American
session at C$1.2459 to the U.S. dollar, or 80.26 U.S. cents, 
strengthening from the day's weakest point of C$1.2493, or 80.04
U.S. cents, but still 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 at 0.75
percent. 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 Canadian
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 up 3 Canadian
cents to yield 0.632 percent and the benchmark 10-year
 up 31 Canadian cents to yield 1.672 percent.

 (Editing by Peter Galloway)