CANADA FX DEBT-C$ hits 4-month low as commodity, rate outlooks weigh

Wed Nov 27, 2013 4:29pm EST
 
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article
[-] Text [+]

* C$ at C$1.0595 vs US$, or 94.38 U.S. cents
    * Bond prices mostly lower


    By Alastair Sharp and Leah Schnurr
    TORONTO, Nov 27 (Reuters) - The Canadian dollar weakened to
a four-month low versus the greenback on Wednesday, as investors
shied away from the commodity-linked currency due to a drab
outlook for resources.
    A Goldman Sachs note out on Tuesday suggested the Canadian
dollar could fall to C$1.14 a year from now as commodity prices
are likely to sag. U.S. crude fell by nearly $2 a barrel
on Wednesday after a higher-than-expected build in inventories.
    That outlook, coupled with a retreat in the Bank of Canada's
hawkish tilt and expectations that the Federal Reserve will soon
move to withdraw its monetary stimulus, has cut about 3 percent
off the relative value of Canada's currency since late October.
    After the Fed surprised markets in September by holding the
pace of its $85 billion a month in bond purchases steady,
investors are trying to gauge whether the U.S. central bank will
begin to wind down its bond buying at its next meeting in
December or wait until next year.
    A rise in U.S. bond yields indicates Fed
tapering "is going to come sooner rather than later," said Rahim
Madhavji, president of Knightsbridge FX.com in Toronto.
    "That bodes well for the U.S. dollar and, unfortunately,
it's not good news for the Canadian dollar."
    The Canadian dollar ended the North American
trading session at C$1.0595 to the greenback, or 94.38 U.S.
cents, weaker than C$1.0530, or 94.97 U.S. cents, at Tuesday's
close. The loonie hit a session low of C$1.0603, its weakest
since early July.
    The Canadian dollar is seen benefiting if the Fed maintains
its bond-buying program longer, as the currency should attract
some risk appetite.
    In the meantime, the trend of U.S. dollar strength and
Canadian dollar weakness is likely to continue in the short
term, said Madhavji.
    "Inflation isn't a threat, oil prices are getting weaker,
the Bank of Canada is not going to do anything - the loonie is
caught without much of a catalyst to help it," said Madhavji.
    Trading is likely to be muted on Thursday with U.S. markets
closed for the Thanksgiving holiday. On the domestic front,
investors will get data on the current account deficit, which is
expected to have narrowed in the third quarter.
    The two-year bond was unchanged to yield 1.098
percent, while the benchmark 10-year bond fell 22
Canadian cents to yield 2.552 percent.