CANADA FX DEBT-C$ trades sideways ahead of BoC rate decision

Wed Sep 8, 2010 8:05am EDT
 
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 * C$ at 95.45 U.S. cents
 * Bonds prices edge lower
 * Market prices in BoC hike of 25 bps
 By Claire Sibonney
 TORONTO, Sept 8 (Reuters) - The Canadian dollar was little
changed against the greenback on Wednesday as investors waited
to find out whether the Bank of Canada will hike interest rates
for the  third time this year.
 The central bank decides on interest rates at 9:00 a.m.
(1300 GMT) in one of the closer calls in some time. Markets on
Wednesday morning were pricing in about a 73 percent
probability of a quarter-point hike to 1.00 percent, according
to a Reuters calculation based on yields on overnight index
swaps. BOCWATCH
 A Reuters poll of 41 forecasters, including Canada's 12
primary dealers, showed a majority see a hike, followed by a
pause for the rest of the year. [CA/POLL]
 "There's going to be some debate as to whether or not they
go but the market by and large has priced in a rate hike," said
Jack Spitz, managing director of foreign exchange at National
Bank Financial.
 "I think the bank does go, I think the bank's guidance will
be tentative, no different than it was before."
 Apart from the rate decision itself, the Bank of Canada's
outlook in its accompanying statement is seen as crucial in
setting further direction for the domestic currency.
 Elsewhere, global equities showed mixed performance while
commodity prices were generally weaker, subject to another bout
of on-again, off-again investor jitters, this time about
European banks. [MKTS/GLOB]
  At 7:44 a.m. (1144 GMT), the Canadian dollar stood at
C$1.0477 to the U.S. dollar, or 95.45 U.S. cents, just a bit
stronger than Tuesday's North American finish at C$1.0480 to
the U.S. dollar, or 95.42 U.S. cents.
 "I would see the initial reaction from a rate hike likely
to sell dollar/Canada down to C$1.04 but the soft guidance
might see a better (U.S.) dollar bid," added Spitz.
 "But much of that better (U.S.) dollar bid would likely be
on the back of global risk factors, which once again are
tentative this morning if measured by euro/Swiss and
dollar/yen, both trading at trend lows."
  Investors are also eyeing the U.S. Federal Reserve's
release of its Beige Book, due later in the day. This economic
evidence gathered from the central bank's 12 regional banks
will provide insight into the state of the U.S. economy, as
well as U.S. retail sales data.
 With risk aversion in focus, Canadian bond prices tracked
U.S. Treasuries lower. [US/]
  The two-year Canada bond CA2YT=RR dropped 1 Canadian
cent to yield 1.276 percent, while the 10-year bond CA10YT=RR
fell 19 Canadian cents to yield 2.831 percent.
(Reporting by Claire Sibonney, Editing by Chizu Nomiyama)