CANADA FX DEBT-C$ up as bank holds tightening stance

Tue Jul 17, 2012 9:44am EDT
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* C$ firms against US$ at C$1.0136
    * Central bank still leans toward rate hike
    * Market eyes U.S. Fed comments
    * Bonds mostly lower across curve

    By Jennifer Kwan
    TORONTO, July 17 (Reuters) - The Canadian dollar edged
slightly higher against its U.S. counterpart on Tuesday as the
Bank of Canada held rates steady but maintained its tightening
    Against the greenback, Canada's currency firmed to
C$1.0136, or 98.66 U.S. cents as the central bank made clear it
still expected to nudge rates up before too long, even as other
central banks ease monetary policy to cope with damaging
economic slowdowns. 
    Markets had been focused on whether the central bank will
repeat, dilute or omit the message that it may soon need to
raise the rate. 
    "I think part of what's behind the bank's language is that
they simply do not want the market pricing in rate cuts and they
continue to show that that's just not part of their play book at
this stage," said Doug Porter, deputy chief economist at BMO
Capital Markets.
    "The market is interpreting the talk as being a little
tougher than expected and so we've seen just ... a little bit of
strengthening in the Canadian dollar," he said.
    Higher interest rates tend to help a country's currency
appreciate because they often attract international capital
    On Monday, the Canadian dollar ended at C$1.0147 against the
U.S. dollar, or 98.55 U.S. cents. 
    The market is also keeping tabs on the U.S. Federal Reserve
with global shares and the euro edging up
as investors speculated that Fed Chairman Ben Bernanke would
hint at more monetary stimulus later in the day.
    Bernanke begins the first leg of a two-day testimony to U.S.
lawmakers at 10 a.m. (1400 GMT) on Tuesday and is expected to be
pressed on whether the central bank is close to launching a
third round of large-scale asset purchases, known as
quantitative easing or 'QE3', and what other tools it might
consider using. 
    "The risks today were significant on both the fundamental
domestic side as well as the U.S. data side, as well as the
central banking side. I think the markets are really waiting for
the U.S. Fed," said Camilla Sutton, chief currency strategist at
    Against the euro, the Canadian dollar traded near
a record high at around C$1.2449, or 80.33 euro cents.
    Canadian bond prices were mostly lower across the curve on
Tuesday with the 10-year bond yield at 1.632
percent. The two-year government bond yielded around
0.978 percent.