CANADA FX DEBT-C$ hits 2-1/2 month low as rates seen on hold
* C$ at C$1.0521 vs US$, or 95.05 U.S. cents * Poloz comments bolster view of low rates for longer * Bond prices higher across the curve By Leah Schnurr TORONTO, Nov 21 (Reuters) - The Canadian dollar weakened to its lowest level in 2-1/2 months against the greenback on Thursday as comments from the head of the Bank of Canada reinforced market expectations that interest rates will remain low for some time. In an appearance before a Senate committee late on Wednesday, Bank of Canada Governor Stephen Poloz said the central bank's economic analysis differed from that of the Organization of Economic Cooperation and Development (OECD), which recommended that it start raising interest rates as soon as 2014. Last month, the central bank surprised markets with a major shift in policy, dropping any mention of an eventual rise in rates after 18 months of explicitly stating that rate hikes were on the horizon. "Basically, Poloz has come out and said 'lower rates for longer'," said Rahim Madhavji, president of Knightsbridge FX.com in Toronto. Still, the impact of Poloz's comments may be a bit overstated as markets had already expected that to be the case, Madhavji said. A recent Reuters poll of primary dealers showed the Bank of Canada is expected to keep its key rate at 1 percent well into 2015. The Canadian dollar ended the North American session C$1.0521 versus the U.S. dollar, or 95.05 U.S. cents, weaker than Wednesday's North American close of C$1.0447, or 95.72 U.S. cents. The loonie hit a low of C$1.0527, its lowest since early September. Investors were also trying to gauge the timetable for monetary policy changes south of the border after U.S. Federal Reserve minutes released Wednesday showed officials felt that the Fed's stimulus program could be scaled back in the next few months if the economy improves enough. Markets are trying to position for the possibility that the Fed will begin to taper its bond purchases at its next meeting in December, or hold off until 2014. The loonie came under pressure after data showed the number of Americans filing for new unemployment benefit claims fell sharply last week, suggesting there was some strengthening of conditions in the U.S. labor market, which is closely watched by the Fed. The Canadian dollar is seen benefiting from a Fed decision delay slowing its quantitative easing program as that would likely increase investors' risk appetite and weigh on the U.S. dollar. As investors assess the likely path of monetary policy at home, Canadian consumer price data due on Friday morning will come under scrutiny. The market expects Canada's annual inflation rate to pull back to 0.9 percent in October from 1.1 percent the month before. Core inflation, which strips out volatile items and is closely watched by the Bank of Canada, is forecast to slip to 1.2 percent from 1.3 percent on an annual basis. "Inflation is going to be the theme that's going to drive interest rate policy in Canada," Madhavji said. "The commentary around there (being) lots of slack in the economy, in essence, is saying look at inflation as the first indicator of how we're going to establish interest rate policy in Canada." Separate data is expected to show retail sales ticked up in September. Canadian bond prices were higher across the maturity curve, with the two-year bond up 8-1/2 Canadian cents to yield 1.108 percent, while the benchmark 10-year bond was up 10 Canadian cents to yield 2.623 percent.
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