CANADA FX DEBT-C$ strengthens ahead of Bank rate decision

Tue Mar 3, 2009 8:09am EST
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TORONTO, March 3 (Reuters) - The Canadian dollar rose slightly against the U.S. dollar on Tuesday ahead of the Bank of Canada's rate announcement, where it is expected to cut rates to help stave off a deteriorating economy.

The central bank makes its announcement at 9 a.m. (1400 GMT). A Reuters poll last week revealed two-thirds of primary securities dealers forecast the bank would cut its key rate by a half a point to a record low of 0.5 percent.

"I think the market is going to pay some attention to the accompanying statement to assess what the bank has in mind going forward in terms of trying to help the market stabilize and what it might mean for policy actions aside from the interest rate front," said George Davis, chief technical at RBC Capital Markets.

Regardless of the size of the rate cut or the accompanying central bank statement, the Canadian dollar may be headed for a further slide given the broader market attraction for the greenback.

At 7:36 a.m., the currency was at C$1.2890 to the U.S. dollar, or 77.58 U.S. cents, up from C$1.2914 to the U.S. dollar, or 77.44 U.S. cents, at Monday's close.

The Canadian unit strengthened as the U.S. dollar weakened with Wall Street set to recover some of the previous day's losses and after the Reserve Bank of Australia left interest rates on hold.

On Tuesday, the market will likely track the price of oil CLc1, a key Canadian export and a driver of the currency's movement, and more notably movements in equity markets.

"I think most people will be making their trading decisions based off of that," said Davis of equity market action.

Domestic bond prices were lower across the curve along with the U.S. Treasury market, which sagged as investors booked profits after sharp gains in the previous session. (Reporting by Jennifer Kwan, Editing by Chizu Nomiyama)