CANADA FX DEBT-C$ ticks weaker ahead of Bank of Canada decision

Tue May 28, 2013 9:52am EDT
 
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* C$ at C$1.0340 to US$, or 96.71 U.S. cents
    * Bank of Canada rate decision eyed; move to neutral stance
an off-chance
    * Prices of government bonds fall across the curve

    By Alastair Sharp
    TORONTO, May 28 (Reuters) - The Canadian dollar weakened
marginally in early trade on Tuesday, as the currency hovered
near recent lows ahead of a Bank of Canada rate decision due on
Wednesday.
    The loonie, as Canada's currency is colloquially known, has
fallen sharply in recent weeks as domestic data suggests the
economy will lag behind its larger neighbor, the United States.
    "There definitely seems to be a desire to take some exposure
to Canada off the table at the moment," said Shaun Osborne,
chief currency strategist at TD Securities.
    At 9:20 a.m. (1320 GMT) the Canadian dollar was
trading at C$1.0340 to the greenback, or 96.71 U.S. cents,
compared with C$1.0337, or 96.74 U.S. cents, at Monday's North
American close.
    Earlier in May, the loonie had almost breached equal value
with the greenback, while several months ago it was worth more
than the U.S. dollar as it looked like the Bank of Canada was
much more likely to hike rates before the U.S. Federal Reserve.
    The Canadian central bank is scheduled to make its next rate
decision on Wednesday. A Reuters poll shows economists don't
expect any tightening until the end of next year as domestic
data keeps showing weakness. 
    Some economists have questioned whether the central bank
might drop a key phrase about plans to raise borrowing costs
eventually. That language makes it the only Group of Seven
central bank with an explicit tightening bias.
    But others have suggested Governor Mark Carney is unlikely
to make a policy shift with the last rate announcement before he
leaves to head the Bank of England in July.
    "There is a train of thought in the market that on the basis
of the data in Canada there is a justification perhaps for the
Bank moving to a neutral stance," Osborne said, adding that a
change in policy is not his base assumption.
    He said the loonie could test C$1.06 within weeks, and that
dropping the tightening bias would likely push the currency
through C$1.04 on Wednesday.
    The price of Canadian government debt fell across the curve,
with the two-year bond off 2 Canadian cents to yield
1.057 percent, while the benchmark 10-year bond fell
16 Canadian cents to yield 2.000 percent.