CANADA FX DEBT-C$ holds near multiyear lows in rate cut aftermath

Thu Jul 16, 2015 9:27am EDT
 
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* Canadian dollar at C$1.2929 or 77.35 U.S. cents
    * Bond prices mixed across the maturity curve

    By Solarina Ho
    TORONTO, July 16 (Reuters) - The Canadian dollar extended
its weakness against its U.S. counterpart on Thursday, the day
after the currency plunged to lows not seen since March 2009
after the Bank of Canada cut its key interest rate for the
second time this year.
    Adding to the pressure was the U.S. dollar's trading near
1-1/2 month highs against a basket of key currencies, with the
U.S. Federal Reserve this week reiterating its intention to
raise interest rates sometime this year, a move that stands in
sharp contrast to Canada's.
    "The (Canadian) dollar reacted quite violently on the (rate
cut)...," said Franklin Bissett Core Plus Bond Fund portfolio
manager Darcy Briggs. "The FX market tends to react with a lot
of volatility, and tends to overshoot in both directions."
    While there could be some near-term pullback, a number of
currency strategists see the loonie breaking through the C$1.30
barrier over the medium to longer term, particularly with the
expected Fed hike still looming. But how much further the
Canadian dollar will retreat and how long it can sustain those
levels will depend in large part on how much of the Fed's
intentions are priced into the market.
    At 9:06 a.m. EDT (1306 GMT), the Canadian dollar 
was trading at C$1.2929 to the greenback, or 77.35 U.S. cents,
slightly weaker than the Bank of Canada's official Wednesday
finish at C$1.2920, or 77.40 U.S. cents.
    The currency traded relatively narrowly on Thursday, between
$1.2911 and C$1.2950, but was still holding at more than
six-year lows.
    There was little domestic data on Thursday to budge the
currency. However, Canadian and U.S. inflation data for June are
due on Friday at 8:30 a.m. EDT. 
    Canadian government bonds were mixed across the maturity
curve, with the longer-term prices falling. The two-year
 price was off 2 Canadian cents to yield 0.409
percent, and the benchmark 10-year slid 10 Canadian
cents to yield 1.606 percent.
    The Canada-U.S. two-year bond spread was -26.4 basis points,
while the 10-year spread was -77.9 basis points.

 (Reporting by Solarina Ho; Editing by Lisa Von Ahn)