CANADA FX DEBT-C$ at 3-year low as central bank flags inflation risk

Wed Dec 4, 2013 10:44am EST
 
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* C$ at C$1.0676 vs US$, or 93.67 U.S. cents
    * C$ weakens further after Bank of Canada statement
    * Bond prices mixed across the maturity curve


    By Leah Schnurr
    TORONTO, Dec 4 (Reuters) - The Canadian dollar weakened to a
three-year low against the greenback on Wednesday after the Bank
of Canada sounded a touch more dovish in its outlook,
highlighting the risks of undesirably weak inflation.
    The currency hit a session low shortly after the central
bank's statement was released, extending recent losses for the
battered loonie. The Canadian dollar has fallen in five of its
last six sessions, dropping through key support levels as
bearish sentiment builds.
    The Bank of Canada's statement showed it is increasingly
concerned about possible disinflation, though it added that the
balance of risks remained within the range of possibilities it
identified at its last meeting in October. 
    "The statement is obviously more dovish than the prior
statement, so it's a negative for the currency," said Robert
Kavcic, senior economist at BMO Capital Markets.
    "I think if you read between the lines, they do have their
eye on the Canadian dollar and would be perfectly happy to see
it at a lower (weaker) level."
    Wednesday's statement was the first following a policy shift
in October, when the central bank dropped any mention of a rate
hike, catching markets off guard.
    Since that meeting in October, the loonie has lost more than
3 percent as the currency has also been pressured by weak oil
prices and prospects that the Federal Reserve could begin
winding down its economic stimulus sooner rather than later.
    The Canadian dollar was at C$1.0676 to the
greenback, or 93.67 U.S. cents, weaker than Tuesday's close of
C$1.0649 or 93.91 U.S. cents.
    The loonie traded as far as C$1.0698, its lowest level since
May 2010. 
    As was widely expected, the central bank also held interest
rates at 1 percent, where they have been since 2010. October's
policy shift pushed out market expectations for the next rate
hike into 2015. 
    The two-year bond edged up half a Canadian cent
to yield 1.069 percent, while the benchmark 10-year bond
 fell 36 Canadian cents to yield 2.633 percent.