CANADA FX DEBT-C$ hits deeper six-month low as Fed, BoC policy seen diverging

Fri Sep 26, 2014 9:56am EDT
 
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* Canadian dollar at C$1.1118 or 89.94 U.S. cents
    * Bond prices lower across the maturity curve

    By Solarina Ho
    TORONTO, Sept 26 (Reuters) - The Canadian dollar deepened
its six-month low against its U.S. counterpart on Friday as
expectations grew that U.S. Federal Reserve monetary policy
would start to tighten, while central banks elsewhere, including
Canada, stay where they are.
    The Bank of Canada made a series of comments this week that
signaled to markets it was in no rush to raise interest rates.
Bank officials noted that stronger inflation over the past half
year has been due to one-off factors and estimated that the rate
at which the economy can work at full capacity with stable
inflation is lower than it has been historically.
    The Canadian dollar has softened by about 1.7 percent over
the past six sessions, touching its weakest level since March
26, while the U.S. dollar was headed for its 11th straight
weekly gain against a basket of currencies, its longest winning
streak since 1971. 
    "Every news we've gotten from the Bank of Canada signals
that they're not ready at all to change their tone on the
economy," said Charles St-Arnaud, Canadian economist and
currency strategist at Nomura Securities International in New
York.
    "You'll see probably developing in the coming months, a
policy divergence, where the Federal Reserve is gearing up
toward hiking rates next year, while the Bank of Canada is
really comfortable basically saying 'we're happy where we are'."
    At 9:22 a.m. (1322 GMT), the Canadian dollar, which
was otherwise outperforming all other major currencies except
the Australian dollar, was at C$1.1118 to the greenback, or
89.94 U.S. cents.
    This was weaker than Thursday's close of C$1.1108, or 90.03
U.S. cents. It touched as low as C$1.1137, or 89.79 U.S. cents,
earlier in the session.
    As an exporter of oil and other natural resources, the
generally weaker commodity prices of the past month have also
weighed on the Canadian dollar, analysts say.
    All eyes will be on next Tuesday's gross domestic product
numbers for July, the next key economic data for Canada.
    Canadian government bond prices were generally lower across
the maturity curve, with the two-year off 2.5
Canadian cents, yielding 1.132 percent, and the benchmark
10-year 12 Canadian cents, yielding 2.160 percent.

 (Reporting by Solarina Ho; Editing by Peter Galloway)