CANADA FX DEBT-C$ weaker as Bank of Canada points to tougher times

Wed Apr 17, 2013 11:15am EDT
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* Canadian dollar at C$1.0263 vs US$, or 97.44 U.S. cents
    * Central bank holds rates, trims growth forecasts
    * Hits weakest level since March 19 after central bank news

    By Alastair Sharp
    TORONTO, April 17 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Wednesday after the Bank of
Canada forecast a delayed return to its desired pace of economic
growth, while holding to its view interest rates would need to
rise at some point.
    The loonie, as the currency is colloquially known, stuck to
a weakening trajectory after the central bank statement, at one
point hitting its weakest level in four weeks, but movement was
    "There is some weakness going on in the Canadian dollar, but
modestly so," said Mazen Issa, macro strategist at TD
    The central bank said Canada would likely notch economic
growth of 1.5 percent this year, down from its 2 percent
forecast in January, and said slack in the economy was
continuing to grow.
    It blamed slower growth in government spending and business
investment for the lowered forecast, as well as a sharper
contraction in housing activity than it had predicted.
    The report, in which the central bank also stuck to its
oft-repeated view that its next interest rate move would be a
rise, helped solidify the loonie's position in the high C$1.02s
against the U.S. dollar.    
    After a brief bump stronger right after the report was
released, the currency "faded off, likely because of the outlook
for growth and the headwinds facing the domestic economy," said
Camilla Sutton, chief currency strategist at Scotiabank.
    By mid-morning the Canadian dollar was changing
hands at C$1.0263 to the greenback, or 97.44 U.S. cents,
compared with C$1.0205, or 97.99 U.S. cents, at Tuesday's North
American close.
    At one point it hit C$1.02683, its weakest point since March
    It might have weakened further if the bank had removed its
tightening bias altogether, as some economists had predicted it
    "That hawkish tinge helped the loonie weather so far the
bank's forecast for growth to slow," Joe Manimbo, a senior
market analyst at Western Union Business Solutions, wrote in a
    Canada, which recovered quicker from the global financial
crisis than most developed economies, has eschewed the
unconventional monetary easing proving so popular at the U.S.
Federal Reserve, the Bank of England, and now in drastic fashion
at the Bank of Japan.
    Canadian government debt prices extended their rises across
the curve, with the two-year bond up 2 and a half
Canadian cents to yield 0.925 percent, while the benchmark
10-year bond rose 32 Canadian cents to yield 1.702