CANADA FX DEBT-C$ pulls back from 2-1/2-month low

Thu Jul 2, 2015 4:27pm EDT
 
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* Canadian dollar at C$1.2545 or 79.71 U.S. cents
    * Bond prices mostly lower across the maturity curve

 (Adds quote, byline; updates to close)
    By Leah Schnurr
    OTTAWA, July 2 (Reuters) - The Canadian dollar touched a
2-1/2-month low against the greenback on Thursday before clawing
back some gains as the currency continued to be dogged by
uncertainty over the Greek crisis and reduced expectations for
the Canadian economy.
    Investors remained on watch about Greece's fate a day after
the country's prime minister urged Greeks to reject an
international bailout deal in a referendum this weekend. Greece
defaulted on its debt to the International Monetary Fund earlier
this week. 
    The loonie has shed nearly 2 percent since last Friday,
initially weighed down by concerns over Greece, with the drop
then exacerbated by disappointing Canadian economic data and by
a decline in oil prices.
    Economists say figures that showed a decline in Canadian
economic growth at the start of the second quarter increase the
odds that the Bank of Canada will cut interest rates again by
year-end after opting for a quarter-point cut in January.
    "It definitely does put another rate hike in play but it
doesn't necessarily mean that is going to happen, I think
there's just some speculation that it could be a possibility,"
said Lennon Sweeting, currency strategist at USForex in Toronto.
    Sweeting expects to see more volatility for the loonie, due
to the upcoming rate decision and the uncertainty surrounding
Greece.
    Although markets are still pricing in about a 65 percent
chance that the bank will hold its benchmark rate at 0.75
percent in its next policy announcement later this month, that
is down from about a 70 percent likelihood at the start of the
week. 
    The Canadian dollar ended the North American
session at C$1.2545 to the greenback, or 79.71 U.S. cents,
modestly stronger than the previous session's close of C$1.2589,
or 79.43 U.S. cents, according to Reuters data. The loonie
touched C$1.2632, its lowest since April 13. Canadian markets
were closed on Wednesday for Canada Day.
    Thursday's level was below the Bank of Canada's official
Tuesday close of C$1.2490, or 80.06 U.S. cents. Although many
traders were away from their desks on Wednesday, the loonie shed
0.7 percent as the currency fell alongside the price of oil, a
major Canadian export.
    Canadian government bond prices were mostly lower across the
maturity curve, with the two-year flat to yield 0.480
percent and the benchmark 10-year down 49 Canadian
cents to yield 1.739 percent.

 (Reporting by Leah Schnurr; Editing by Peter Galloway and
Richard Chang)