CANADA FX DEBT-C$ strengthens ahead of jobs, but weakness forecast

Wed Nov 6, 2013 4:56pm EST
 
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* C$ at C$1.0440 vs US$, or 95.79 U.S. cents
    * Bond prices mixed across curve

    By Solarina Ho
    TORONTO, Nov 6 (Reuters) - The Canadian dollar strengthened
against the U.S. dollar in subdued trade on Wednesday, bolstered
in part by positive economic data, but is seen weakening in the
coming weeks and months as bond yields are likely to slip back
toward those of its southern neighbor and main trading partner.
    The pace of purchasing activity in Canada jumped in October
to 62.8 from 51.9 in September, far exceeding analysts'
expectations for a 51.0 reading. A figure above 50 indicates an
increase in the pace of activity. 
    Increased plans for housing construction helped edge the
value of Canadian building permits up by 1.7 percent in
September.
    It was the seventh monthly advance for building permits
since the start of 2013, yet the total value in September was
only 0.2 percent higher than in September 2012, according to
Statistics Canada. 
    "The news wasn't too bad on both sides of the border ... So
we'll see where we go over the next two days with the remaining
data," said Don Mikolich, executive director, foreign exchange
sales CIBC World Markets.
    "The market needs to see continued progress on Canadian
economic numbers to move further into the Canadian dollar and
with the Bank of Canada put a bit of a cloud over the forecast
last week."
    The Canadian dollar closed at C$1.0418 versus the
greenback, or 95.99 U.S. cents, compared with C$1.0458, or 95.62
U.S. cents, at Tuesday's North American close.
    The Canadian dollar, which was mostly outperforming its
major currency counterparts, will take further direction from
North American data , including key employment
figures on Friday.
    In a Reuters poll released on Wednesday, the currency was
seen slipping to C$1.06 a year from now as the combined effect
of tighter future U.S. monetary policy and no imminent rate
hikes in Canada take hold.  
    While much attention in coming weeks will be on whether the
U.S. Federal Reserve will start to trim back its monetary
stimulus, Greg Moore, currency strategist at TD Securities, said
the Bank of Canada's recent dropping of a rate-hike bias would
likely cause weakness in the Canadian currency as short-term
bond yield spreads tighten.
    "The Canadian yield advantage is on an eroding trend and
that should continue perhaps a little more sharply after the
messaging we heard in the past couple of weeks," he said.
    The two-year bond was up 2 Canadian cents to
yield 1.120 percent, while the benchmark 10-year bond
 was flat, yielding 2.537 percent.