CANADA FX DEBT-Canadian dlr firms, Bank of Canada still in focus

Mon Jan 20, 2014 4:25pm EST
 
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* Canadian dollar at C$1.0951 or 91.32 U.S. cents
    * Bond prices higher across the maturity curve


    By Leah Schnurr
    TORONTO, Jan 20 (Reuters) - The Canadian dollar firmed
against the greenback on Monday in muted trade with U.S. markets
closed, while focus was on the Bank of Canada's policy-setting
meeting later in the week.
    The loonie got some support from data released overnight
that showed China's economy grew in the fourth quarter at an
annualized rate of 7.7 percent, slightly above expectations.
Still, some economists say a cooldown in the world's
second-largest economy will be inevitable this year.
 
    Overnight market action showed some "cautious optimism" over
the data, said Scott Smith, senior market analyst at Cambridge
Mercantile Group in Calgary.
    "It's still that narrative that we're seeing a slight
slowdown in Chinese growth, which most analysts have forecast
for the Chinese economy in 2013 and 2014 as the government goes
through its reform process," said Smith.
    The Canadian dollar ended the North American
session at C$1.0951 to the greenback, or 91.32 U.S. cents,
stronger than Friday's close of C$1.0976, or 91.11 U.S. cents.
    The Canadian dollar was also continuing to consolidate after
falling to a more than four-year low last week.
    "We've definitely over the last week or so consolidated
toward this C$1.095 region, really just waiting for the next
catalyst to determine the move," said David Tulk, chief Canada
macro strategist at TD Securities in Toronto.
    Those catalysts should come from some domestic economic data
due this week, as well as the Bank of Canada's interest rate
decision and policy statement on Wednesday, said Tulk.
    The Bank of Canada shifted gears in October last year,
dropping any talk of rate hikes after 18 months of signaling
that tightening was on the horizon. The change has weighed
heavily on the Canadian dollar.
    After some disappointing economic data this month, including
a surprise increase in the unemployment rate, some analysts
expect the central bank could sound more dovish in its statement
on Wednesday, to the further detriment of the loonie. 
    "They have every incentive in the world to sound quite
dovish," said Tulk. "There is some thought out there that the
Bank will go as far as introducing an outright easing bias, I
don't think that criteria for that type of change in policy is
warranted."
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 1 Canadian cent
to yield 1.018 percent and the benchmark 10-year up
9 Canadian cents to yield 2.492 percent.