CANADA FX DEBT-C$ retreats as rate-cut possibility gathers steam
(Updates to close; adds quote, Bank of Canada poll, rate cut expectations) * Canadian dollar at C$1.2740 or 78.49 U.S. cents * Bond prices higher across the maturity curve By Solarina Ho TORONTO, July 8 (Reuters) - The Canadian dollar ended weaker against its U.S. counterpart on Wednesday on expectations of an interest rate cut in Canada next week and as investors worldwide grew more averse to risk. A string of disappointing economic data that suggests Canada could be in a recession has prompted a growing number of forecasts that the Bank of Canada would cut interest rates next week, according to a Reuters poll. Less than two weeks ago, economists had been expecting the central bank to remain on hold after surprising markets in January with a 25 basis point rate cut aimed to help ease the impact of plunging crude prices. Recent data, however, including an unexpected contraction in Canadian growth in April, and a bigger-than-expected trade deficit in May has pushed markets to price in a roughly 50 percent chance of a rate cut at the bank's upcoming policy decision, scheduled for next week. The Canadian dollar finished at C$1.2740 to the greenback, or 78.49 U.S. cents, weaker than the Bank of Canada's official close of C$1.2712, or 78.67 U.S. cents, on Tuesday. "The market has a very negative view on the Canadian economy, so it's hard to see the Canadian dollar make much headway," said Don Mikolich, executive director, foreign exchange sales at CIBC World Markets, adding that Friday's jobs report will be of key interest. "Employment has been on the better side overall, but those job gains don't seem to be translating through to the real economy. ... A really good (jobs) number is the only thing that might be a stay of execution for next week." Mikolich said there appeared to be room for further weakness in the Canadian dollar, with markets eyeing the C$1.28 to C$1.30 level. The price of crude, a key Canadian export, fell more than 1 percent on a surprise build in stockpiles and added to the currency's woes. Investors also fled to safe-haven assets as the rout on China's stock markets resumed, raising concerns that China's economy could destabilize. Jitters over the unresolved Greek debt crisis also loomed. Canadian government bond prices rose across the maturity curve, with the two-year price up 6 Canadian cents to yield 0.435 percent and the benchmark 10-year rising 56 Canadian cents to yield 1.516 percent. The Canada-U.S. two-year bond spread was -11.4 basis points, while the 10-year spread was -68.2 basis points. (Additional reporting by Leah Schnurr in Ottawa; Editing by Peter Galloway)
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