CANADA FX-C$ slips ahead of BoC rate announcement

Mon Apr 16, 2012 4:27pm EDT
 
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* C$ at C$0.9997 vs US$, or $1.0003
    * Market expects "more hawkish" BoC statement
    * Bond prices lower across the curve

    By Jennifer Kwan	
    TORONTO, April 16 (Reuters) - Canada's dollar was little
changed against the U.S. currency on Monday, largely shrugging
off strong domestic and U.S. economic data ahead of the Bank of
Canada's rate announcement on Tuesday.	
    The currency failed to follow the broader trend in U.S.
equities, which were supported by data that showed U.S. retail
sales in March rose more than expected and suggested that
economic growth was not as weak as many feared. 	
    As well, the currency appeared to shrug off domestic data
that showed foreign investors resumed their purchases of
Canadian securities in February after a brief sell-off in
January. 	
    The Canadian dollar was unable to sustain any moves higher
and did not follow the typical trading patterns given Monday's
strong euro and weak U.S. dollar, said Camilla Sutton, chief
currency strategist at Scotia Capital. 	
    "It suggests that it was probably some flows going through
the Canadian dollar that forced it to weaken," said Sutton.	
    Global markets were also kept under pressure by broader
investor concerns about a rise in Spanish borrowing costs, which
raised fresh worries about the euro zone's economic outlook.
 	
    The Canadian dollar finished the session at
C$0.9997 versus the U.S. dollar, or $1.0003, down a bit from
Friday's North American close at C$0.9984 versus the U.S.
dollar, or $1.0016.	
    Sutton said the market focus was squarely on Canada's
central bank announcement on Tuesday.	
    The Bank of Canada looks set to keep interest rates steady,
but will likely keep with the more hawkish tone it has adopted
in the past month and may even add an explicit mention of
eventual rate increases. 	
    The central bank has frozen its overnight lending target at
an extremely low 1 percent for 19 months and is seen standing
pat until the second quarter of 2013, according to the median
forecast in a Reuters poll of 40 analysts. 	
    "Most of the market is expecting a slight shift to a more
hawkish tone," said Sutton.	
    "I would be surprised if we don't hear the statement
sounding more hawkish. Technically things have improved and so I
would expect to hear that reflected. The risk is that it's very
similar to the last statement and that that's a disappointment
to markets, and we see the Canadian dollar weaken." 	
    Canadian government bond prices sank across the curve, with
Canada's two-year bond down 6 Canadian cents to yield
1.229 percent. The 10-year bond fell 16 Canadian
cents to yield 2.005 percent.