CANADA FX DEBT-C$ gets relief against greenback; eyes on central bank

Thu Jan 16, 2014 9:52am EST
 
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* Canadian dollar at C$1.0910 or 91.66 U.S. cents
    * Bond prices higher across the maturity curve

    By Leah Schnurr
    TORONTO, Jan 16 (Reuters) - The Canadian dollar firmed
against the greenback on Thursday as the loonie got some relief
from its recent selloff, though investor focus was on next
week's Bank of Canada meeting and the possibility the central
bank could sound more dovish.
    The Canadian currency got some support from data that showed
foreign investment in Canadian securities nearly doubled to
C$8.66 billion ($7.94 billion) in November, with bond purchases
reaching their second-highest level of the year. 
    The loonie has been on a downward trend since late October
when the Bank of Canada abandoned any talk of rate hikes in its
policy statement after 18 months of signaling that tightening
was on the horizon.
    The Canadian dollar entered 2014 with most analysts
expecting the currency to weaken, but the swiftness of its drop
has surprised some. Just two weeks into 2014, the U.S. dollar
has appreciated nearly 3 percent against the Canadian currency.
    "The market has been waiting for a little steam to come off
the top of this U.S. dollar-Canadian dollar rally we've seen,"
said Scott Smith, senior market analyst at Cambridge Mercantile
Group in Calgary.
    The Canadian dollar was at C$1.0910 to the
greenback, or 91.66 U.S. cents, stronger than Wednesday's close
of C$1.0945, or 91.37 U.S. cents. The loonie touched a more than
four-year low on Wednesday.
    "At this point, I don't think it's unreasonable to see us
move back into the C$1.08 level, we could continue to see a
little bit of consolidation here," said Smith.
    "That said, I don't think there's a lot of room for the
loonie to put in too many strong gains. The big risk on most
traders' radar is going to be the Bank of Canada rate statement
next week."
    After disappointing economic data last week, markets are
speculating the Bank of Canada could sound more accommodative at
its policy-setting meeting on Jan. 22.
    While Smith said he is not expecting the central bank to cut
rates, dovish language in its statement could be the catalyst to
send the Canadian dollar on its next leg lower.
    Economists expect the Bank of Canada will hold off raising
rates until the second quarter of 2015, according to a Reuters
poll. 
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 2-1/2 Canadian
cents to yield 1.056 percent and the benchmark 10-year
 up 30 Canadian cents to yield 2.544 percent.