CANADA FX DEBT-C$ dips along with stocks; Bank of Canada looms

Wed Sep 9, 2009 4:57pm EDT
 
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 * C$ weaker at C$1.0810 to the U.S. dollar, or 92.51 cents
 * Bonds narrowly mixed
 * Bank of Canada rate announcement key Thursday event
 (Updates throughout)
 By Ka Yan Ng
 TORONTO, Sept 9 (Reuters) - The Canadian dollar CAD=D3
dipped against the U.S. currency on Wednesday as risk appetite
waned with Toronto stocks, but much of the market was focused
on the Bank of Canada's key rate announcement on Thursday.
 While no change is expected on the interest rate front,
investors are closely watching whether the central bank will
keep up pressure on markets to back off the Canadian dollar. It
may also express confidence in its view that the economy is
bouncing back. [ID:nN08189274]
 The central bank said at its July rate announcement that
the strong Canadian dollar was moderating the pace of the
country's growth. Since then, the currency has appreciated
further, with several episodes of jawboning by Canadian
officials taking the shine off the currency only temporarily.
 "They might mention the currency and you might get a little
bit of a knee-jerk reaction. But I think after all is said and
done, you're going to see the Canadian dollar appreciate again,
especially in this environment where commodities are bid and
the U.S. dollar generally looks under pressure," said David
Bradley, director of foreign exchange trading at Scotia
Capital.
 "Today we've seen a bit of consolidation."
 The Canadian dollar closed at C$1.0810 to the U.S. dollar,
or 92.51 U.S. cents, down slightly from C$1.0794, or 92.64 U.S.
cents at Tuesday's close.
 A decline on Toronto's stock index also contributed to a
weaker tone to the currency, reversing the morning's early
strength.[.TO]
 The Canadian dollar had already been on the rise alongside
firm commodity prices when it got a lift from
rosier-than-expected domestic housing starts data, which helped
it reach a session high at C$1.0759 to the U.S. dollar, or
92.95 cents.
 Canadian housing starts rose 12.1 percent in August from
July, beating expectations, and at its fastest pace this year,
underscoring a rebound in the property sector. [ID:nN09322143]
 "It's further confirmation that a slow recovery is underway
in the housing market," said Matthew Strauss, senior currency
strategist at RBC Capital Markets.
 BONDS MIXED
 Domestic government bonds were little changed ahead of the
Bank of Canada's statement with many investors loathe to take
big positions leading into the event.
 The two-year bond CA2YT=RR was up 4 Canadian cents at
C$99.52 to yield 1.250 percent, while the 10-year bond
CA10YT=RR dipped 15 Canadian cents to C$102.65 to yield 3.426
percent.
 The 30-year bond CA30YT=RR fell 10 Canadian cents to
C$117.75 to yield 3.941 percent.
 Canadian bonds mostly underperformed their U.S.
counterparts. The Canadian 10-year bond yield was 5.3 basis
points below its U.S. counterpart, compared with 7.2 basis
points on Tuesday.
 (Additional reporting by Jennifer Kwan; Editing by Jeffrey
Hodgson)