CANADA FX DEBT-C$ hits session low after BoC warns on growth

Wed Jan 19, 2011 1:35pm EST
 
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   * C$ weakens to C$0.9964, or $1.0036, lowest since Jan. 14
 * BoC warns in MPR strong C$ will temper growth
 * Canadian factory sales weaker than expected
 By Solarina Ho
 TORONTO, Jan 19 (Reuters) - The Canadian dollar hit a
session low against its U.S. counterpart on Wednesday after the
Bank of Canada warned in a key report that the high level of
the domestic currency would temper growth.
 The central bank said in its quarterly Monetary Policy
Report that Canadian growth will pick up speed this year after
a sharp slowdown in the third quarter of 2010, but a strong
Canadian dollar will mute the much-needed recovery in exports.
[ID:nN19255456]
 The Canadian dollar already fell from a 2 1/2-year high on
Tuesday after the bank kept its key policy rate steady at 1
percent and used unexpectedly dovish language in its policy
statement. [ID:nN18290983]
 "This report just substantiates the message of the press
statement that the bank will probably not raise rates in March,
maybe not for a few more months," said Sal Guatieri, a senior
economist at BMO Capital Markets.
 Most of Canada's primary dealers polled on Tuesday expect
another rate increase in the first half of this year, although
they differ on the timing. [CA/POLL]
 At 12:53 p.m. (1753 GMT), the currency CAD=D4 stood at
C$0.9955 to the U.S. dollar, or $1.0045. The currency, already
weaker heading into the bank's report, fell as low as C$0.9964
to the U.S. dollar, or $1.0036. It had closed at C$0.9929 to
the U.S. dollar on Tuesday.
 Weaker-than-expected Canadian manufacturing data on
Wednesday also added to concerns about Canada's fourth-quarter
gross domestic product report and weighed on the Canadian
dollar. [ID:nN19215598]
 "That suggests the economy was fairly flat in November and
probably had a few analysts revising down their fourth quarter
growth estimates," said Guatieri.
 Canadian government bond prices were firmer across the
curve, helped by the view a strong currency could push back
Bank of Canada rate increases. Both Canadian and U.S.
government bonds also benefited from safe-have demand triggered
by a decline in stock markets. [US/]
 The interest rate-sensitive two-year bond CA2YT=RR was up
9.7 Canadian cents to yield 1.716 percent, while the 10-year
bond CA10YT=RR added 30 Canadian cents to yield 3.238
percent.
 (Editing by Jeffrey Hodgson)