CANADA FX DEBT-C$ pares gains after BoC holds rates; cites risks

Tue Dec 7, 2010 10:22am EST
 
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 * C$ slips to 99.42 U.S. cents
 * Bonds lower but outperform Treasuries
 (Updates with analyst comment, further detail)
 By Claire Sibonney
 TORONTO, Dec 7 (Reuters) - The Canadian dollar cut
overnight gains to trade little changed on Tuesday after the
Bank of Canada held its key interest rate steady, as expected,
and issued a statement widely seen as dovish.
 The central bank set the stage for rates to pause at 1
percent for some time by emphasizing that lower exports were
curbing growth. [ID:nN07106511]
 At 10:00 a.m. (1500 GMT), the Canadian dollar CAD=D4 was
at C$1.0058 to the U.S. dollar, or 99.42 U.S. cents, compared
with C$1.0027, or 99.73 U.S. cents right before the
announcement.
 It was just slightly weaker than Monday's close at C$1.0053
to the U.S. dollar, or 99.47 U.S. cents.
 "Certainly the acknowledgment that Canadian growth was not
proceeding as expected, and some challenges cited in terms of
productivity and the Canadian dollar, and net exports as a
consequence of that, those were notable," said Eric Lascelles,
chief Canada macro strategist at TD Securities.
 "The market has more or less factored in this outcome over
the last several days, so the magnitude of the move is fairly
limited on the actual day."
 Overnight, the currency had flirted with parity, climbing
to a session high of C$1.0011 to the U.S. dollar, or 99.89 U.S.
cents, as global equities and commodities rallied on the back
of a U.S. tax deal and hope that Ireland will pass an austerity
budget. [MKTS/GLOB]
 "We've seen the currency weaken off a little bit ... But
it's being driven today by broader events," said Doug Porter,
deputy chief economist at BMO Capital Markets.
 Canadian bond prices were softer, tracking U.S. Treasuries,
as investors bailed out of safe-haven government debt in favor
of stocks and other risky assets. [US/]
 However, Canadian bonds outperformed their U.S.
counterparts across most of the curve with the dovish Bank of
Canada statement capping the sell-off.
 The two-year Canada bond CA2YT=RR was down 4 Canadian
cents to yield 1.582 percent, while the 10-year bond
CA10YT=RR fell 55 Canadian cents to yield 3.192 percent.
 (Editing by Jeffrey Hodgson)