CANADA FX DEBT-C$ strengthens to near one-week high after Bank of Canada news
(Adds details on Bank of Canada decision, economist comments) * Canadian dollar at C$1.2954, or 77.20 U.S. cents * Traders further unwind rate cut bets By Alastair Sharp TORONTO, July 13 (Reuters) - The Canadian dollar hit its strongest level since July 7 against its U.S. counterpart on Wednesday after the Bank of Canada held rates steady and trimmed its economic forecasts, as traders unwound bets that the central bank could cut rates this year. At 10:29 a.m. EDT (1429 GMT), the Canadian dollar was trading at C$1.2954 to the greenback, or 77.20 U.S. cents, much stronger than the Bank of Canada's official Tuesday close of C$1.3030, or 76.75 U.S. cents. It was at C$1.3069 just before the rate decision and outlook were published, and at one point afterwards touched C$1.2936. Governor Stephen Poloz will hold a news conference due to start at 11:15 a.m. EDT. The Bank of Canada cut its growth forecast as disappointing exports and global uncertainties dampened demand, and warned that while it expected business investment to rise, it may have underestimated structural challenges facing industry. But economists said the comments did not bolster a minority view that rates would need to be trimmed this year. "While we can't rule it out, I'd say there really isn't much sense here that the Bank's leaning in that direction, so the initial reaction has been a stronger Canadian dollar and I think that's appropriate," said Doug Porter, chief economist at BMO Capital Markets. Overnight index swaps, which track expectations for the central bank's main policy rate, showed traders reduced bets on a rate cut following the news. Separately, oil prices fell after the International Energy Agency warned that a global supply glut threatened a price recovery and data showed an unexpected weekly gain in U.S. crude stocks. The Canadian dollar was underperforming most of its key currency counterparts. Canadian government bond prices trimmed gains after the news but were still higher across the maturity curve, with the two-year price up 2 Canadian cents to yield 0.495 percent and the benchmark 10-year rising 42 Canadian cents to yield 1.014 percent. "What the market is telling us is that they don't believe that the Bank of Canada is going to be normalizing rates any time soon," said Royce Mendes, a senior economist at CIBC Capital Markets. The Canada-U.S. two-year bond spread narrowed to -17 basis points, while the 10-year spread came in to -46 basis points. (Additional reporting by Susan Taylor and Matt Scuffham; Editing by Nick Zieminski and Jeffrey Hodgson)
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