CANADA FX DEBT-C$ flat as Europe concerns offset BoC

Thu Apr 19, 2012 8:28am EDT
 
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* C$ at C$0.9913 vs US$, or $1.0088
    * Europe offsets Bank of Canada's rosier view
    * Bonds flat to softer across curve

    By Jennifer Kwan	
    TORONTO, April 19 (Reuters) - Canada's dollar was little
changed against its U.S. counterpart on Thursday as worries
about Spain's ability to deal with its ballooning deficit kept
the risk-linked currency under pressure after recent gains.	
    Solid demand at Spain's bond sale on Thursday briefly lifted
the euro and European shares, but the gains were curbed due to
broader concerns about the financial stability of the euro zone.	
    France and Spain sold all the bonds they wanted at auction
on Thursday, though for Spain the cost was higher yields,
indicating growing concerns the government will not be able to
tame its deficit.  	
    European concerns are over-shadowing a "decent" domestic
story, said Shane Enright, an executive director of foreign
exchange sales at CIBC World Markets.	
    The Bank of Canada kept interest rates unchanged at 1
percent on Tuesday, as expected, but signaled that it was
starting to think more seriously about tightening monetary
policy. 	
    The surprisingly hawkish stance by the central prompted
several of the country's primary dealers to pull forward their
forecasts for an interest rate hike, according to a Reuters
poll, with the central bank now expected to tighten policy early
next year. 	
    "The domestic story is pretty decent. The Bank of Canada
made that clear this week," said Enright.	
    "But you still have a lot of issues in Europe. The euro is
still on the heavy side. Commodity prices have struggled to
rebound, equity markets are a little shaky so all of those
factors are offsetting what's a decent domestic story." 	
    Indeed in Wednesday's Monetary Policy Report (MPR), a
quarterly report outlining the Bank of Canada's base-case
projection for Canadian inflation and growth, the bank raised
its growth forecasts for the first three quarters of 2012, but
warned that Canadian household debt levels would rise further.
 	
    Bank Governor Mark Carney also said the euro zone debt
crisis was "still the biggest downside risk, external downside
risk" to the Canadian economy. 	
    At around 8:15 a.m. (1215 GMT), the Canadian dollar 
ended at C$0.9913 against the U.S. dollar, or $1.0088, unchanged
from Wednesday's finish at C$0.9913 against the U.S. dollar, or
$1.0088.	
    Oil and gold prices were also mixed, keeping the currency
flat.  	
    With little economic data in Canada, traders would look to
U.S. jobs and a manufacturing reading for further guidance.
 	
    Canadian government bond prices were flat to softer. The
two-year bond was unchanged to yield 1.323 percent.
The benchmark 10-year bond shed 7 Canadian cents to
yield 2.052 percent.