CANADA FX DEBT-C$ firms; market focus fixed on central bank

Mon Apr 14, 2014 4:39pm EDT
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* Canadian dollar at C$1.0953 or 91.30 U.S. cents
    * Bond prices mostly lower across the maturity curve

 (Adds market action, quote, updates prices)
    By Leah Schnurr
    TORONTO, April 14 (Reuters) - The Canadian dollar firmed
modestly against the greenback on Monday, though gains were
limited by investor reluctance to make aggressive bets ahead of
a policy statement from the Bank of Canada later in the week.
    Developments in Ukraine, where armed pro-Russian separatists
seized more buildings and expanded their control in the eastern
part of the country, had prompted a more risk-averse tone
earlier in the day but markets were able to shrug off the
    With no major domestic data on tap for Monday, investors at
home focused their attention on Wednesday's scheduled Bank of
Canada statement and Monetary Policy Report.
    While the central bank is expected to hold rates at 1
percent, analysts will parse the quarterly policy report for any
change in its tone. 
    "I think there's going to be the potential to see some
further loonie weakness on Wednesday," said Scott Smith, senior
market analyst at Cambridge Mercantile Group in Calgary.
    "I don't think we'll see anything necessarily new in terms
of the potential for direction from the Bank of Canada, but I
think they will continue to highlight their neutral stance
towards interest rates, with possibly a slight dovish tone." 
    The central bank has been a major driver of the Canadian
dollar since last October, when it dropped any reference to a
policy tightening on the horizon, making for a more dovish tone
than markets had expected.
    "They're still really looking for a weaker currency to flow
through into the export sector and that has been slower to
materialize," said Don Mikolich, executive director of foreign
exchange sales at CIBC World Markets in Toronto.
    "I think they would still like to see the currency remain on
the weaker side for a while."
    The Canadian dollar ended the North American
session at C$1.0953 to the greenback, or 91.30 U.S. cents,
stronger than Friday's close of C$1.0979, or 91.08 U.S. cents.
    Since hitting a 4-1/2 year low last month, the Canadian
dollar has gained about 3 percent. Mikolich said key levels to
watch for the U.S. dollar-Canadian dollar will be C$1.0958 and
C$1.0920 on the downside, and C$1.10 and C$1.1055 on the top.
    Canadian government bond prices were mostly lower across the
maturity curve, with the two-year off 1 Canadian cent
to yield 1.052 percent and the benchmark 10-year 
down 8 Canadian cents to yield 2.410 percent.

 (Editing by Peter Galloway)