CANADA FX DEBT-C$ hits session low after China hikes, eye on BoC

Tue Oct 19, 2010 8:25am EDT
 
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   * C$ hits session low of 97.34 U.S. cents
 * Bonds prices lower across curve
 By Claire Sibonney
 TORONTO, Oct 19 (Reuters) - The Canadian dollar slid
against its U.S. counterpart on Tuesday as the greenback picked
up steam after China's unexpected monetary tightening while
investors cautiously awaited the Bank of Canada's own interest
rate decision later in the morning.
  China's central bank surprised the market with its first
increase of interest rates in nearly three years, a move that
reflects its concern about rising domestic asset prices and
stubborn inflation. [ID:nTOE63E07V]
 Shortly following China's announcement, the Canadian
currency CAD=D4 hit a session low of C$1.0273 to the U.S.
dollar, or 97.34 U.S. cents, more than a penny off of Monday's
finish at C$1.0141, or 98.61 U.S. cents.
 "Bank of China hiking by a quarter has the market caught a
little bit off guard," said C.J. Gavsie, managing director of
foreign exchange sales at BMO Capital Markets.
 "It's not a surprise that they have done so with respect to
the economic releases that we've seen but on the other hand we
have not been watching China rates as close as ... our own
domestic rates."
 The market is betting on a near certainty that Canada's
central bank will hold its key policy rate at 1 percent in its
scheduled announcement at 9 a.m. (1300 GMT), while the tone of
its statement will be closely followed for further direction.
[ID:nN15144891]
 Gavsie said he was looking for some slightly hawkish tones
in the statement that could see the Canadian dollar strengthen
in reaction, although the China news would dominate global
currency markets for the rest of the day.
 "I don't think it's ... going to have us running towards
parity in a hurry, but I wouldn't be surprised to see another
test of the C$1.02 level," he added.
 Gavsie noted that C$1.0185 is a key technical level that
the currency must breach to resume its strengthening trend.
 At 8:13 a.m. (1213 GMT), the Canadian dollar stood at
C$1.0254 to the U.S. dollar, or 97.52 U.S. cents.
 Canadian government debt prices fell, tracking U.S.
Treasuries lower as stock futures trimmed losses. [US/]
 The two-year bond CA2YT=RR was off 1 Canadian cent to
yield 1.421 percent, while the 10-year bond CA10YT=RR shed 17
Canadian cents to yield 2.778 percent.
 (Reporting by Claire Sibonney; editing by Jeffrey Hodgson)