CANADA FX DEBT-C$ post-Fed rally fades; inflation data in focus

Thu Jun 18, 2015 4:56pm EDT
 
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* Canadian dollar at C$1.2227 or 81.79 U.S. cents
    * Bond prices mixed across the maturity curve

    By Solarina Ho
    TORONTO, June 18 (Reuters) - The Canadian dollar gave up all
of its gains against the greenback on Thursday, despite a
broadly weaker U.S. dollar and stronger price of oil, as markets
digested the implications of the Federal Reserve's
more-dovish-than-forecast comments.
    Still, the Fed is expected to raise interest rates sometime
this year. It signaled on Wednesday, though, that increases
could start later than anticipated, with the U.S. economy
growing more slowly than previously forecast after contracting
in the first quarter.
    "A really big roller coaster day. What you're seeing is, not
only in foreign exchange but in all trading products, an attempt
to find a new equilibrium as the markets digest what the Fed
said and what the Fed did not say," said Brad Schruder, director
of foreign exchange at BMO Capital Markets.
    "As far as today goes, you could probably classify it as a
little bit of exuberance taking the Canadian dollar too far as
the market rebalances."
    The Canadian dollar finished at C$1.2227 to the
greenback, or 81.79 U.S. cents, little changed from the Bank of
Canada's Wednesday close of C$1.2236, or 81.73 U.S. cents.
    The Fed comments, combined with May inflation data that came
in just shy of forecasts, kept the U.S. dollar under pressure
and helped drive the loonie up more than 0.8 percent to its
strongest level in about a month. The currency traded between
C$1.2127 and C$1.2250 during the session. 
    Overhanging all markets, however, were concerns that Greece
and its international creditors will be unable to reach a deal
to prevent the debt-ridden country from defaulting at the end of
the month.
    "That being said, the short-term path for the Canadian
dollar does look somewhat bright," said Schruder, who advised
those selling U.S. dollars to look at rallies toward C$1.23 to
C$1.24 as a good place to hedge short term exposure. For buyers,
look for moves below C$1.20 into C$1.1850.
    May Canadian inflation data due at 8:30 a.m. EDT (1230 GMT)
on Friday will be key for market watchers, along with retail
sales data for April.
    Canadian government bond prices were mixed across the
maturity curve, with the shorter-term notes slightly higher. The
two-year was down 3.5 Canadian cents to yield 0.622
percent, and the benchmark 10-year was down 36
Canadian cents to yield 1.792 percent.

 (Reporting by Solarina Ho; Editing by Lisa Von Ahn and Diane
Craft)