CANADA FX DEBT-C$ touches two-week low on domestic data

Wed Jan 20, 2010 11:07am EST
 
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 * C$ falls to C$1.0469 to the US$, or 95.52 U.S. cents
 * Currency hits 2-week low after CPI, factory data
 * November inflation figures come in lower than expected
 * Bond prices firm across curve
 (Adds details, quote)
 TORONTO, Jan 20 (Reuters) - Canada's dollar stumbled on
Wednesday as the U.S. dollar gained broadly and as unexpectedly
low Canadian inflation data lessened the chances that the Bank
of Canada will raise interest rates any time soon.
 The currency touched its lowest level in just over two
weeks against its U.S. counterpart at C$1.0489 to the U.S.
dollar, or 95.34 U.S. cents, following the data.
 The consumer price index slipped 0.3 percent in December
from November, Statistics Canada said on Wednesday, and
12-month inflation was 1.3 percent, lower than expected. Core
CPI, closely watched by the central bank, also came in slightly
weaker than expected with a decline of 0.3 percent in the month
for an annual rate of 1.5 percent.
 [ID:nN20125463]
 In a separate report, Canadian manufacturing sales advanced
less than expected in November from October as weakness in the
automotive and aerospace sectors offset gains in most other
industries, Statistics Canada said. [ID:nN20446129]
 George Davis, chief technical strategist at RBC Capital
Markets, said the weakness in the inflation data takes any kind
of pressure off the Bank of Canada to act sooner rather than
later on raising rates.
 "I think from a shorter-term perspective we might see a
little more Canadian dollar weakness in reaction to that," he
said.
 At 10:19 a.m. (1519 GMT), the Canadian dollar was at
C$1.0469 to the U.S. dollar, or 95.52 U.S. cents, down from
Tuesday's finish of C$1.0307 to the U.S. dollar, or 97.02 U.S.
cents.
 Another key factor driving the Canadian currency lower on
Wednesday was a jump in the greenback, which was given a boost
from expectations the election in Massachusetts of a Republican
to a U.S. Senate seat might see the government rein in spending
and cut the fiscal deficit. [ID:nN18159712]
 "We're seeing the U.S. dollar outperform across the board,"
said J.P. Blais, vice president of foreign exchange products at
BMO Capital Markets.
 The euro fell to five-month lows against the dollar on
Wednesday as concerns over Greek debt pushed the currency below
a key support level and triggered widespread selling. [FRX/]
 BONDS FIRM
 Canadian bond prices were firmer across the curve as the
market interpreted the inflation data as an indicator the Bank
of Canada will stick to its conditional pledge to keep rates on
hold until the end of the second quarter.
 "It really cemented the fact that there are really soft
inflation pressures going through the economy," said Ian
Pollick, economics strategist at TD Securities.
 The yield on the two-year bond CA2YT=RR dipped to 1.217
percent, from 1.255 percent just before the inflation data was
released.
 Yields on overnight index swaps, which trade based on
expectations for the key rate, edged lower after the data,
showing the market saw tightening as less likely. Still, the
market suggests the Bank of Canada's key rate will be around
0.50 percent in July and 1 percent in December, compared with
the current 0.25 percent. BOCWATCH
 Pollick added the market is keenly awaiting details from
Thursday's Monetary Policy Report (MPR), the central bank's
quarterly economic projection, and an ensuing press conference
by Governor Mark Carney.
 "If there is more of a dovish tone to the MPR, which I
think the Street is thinking about right now, I think they're
setting up for a further rally tomorrow," he said.
 The two-year Canada bond CA2YT=RR edged 11 Canadian cents
higher to C$100.09 to yield 1.204 percent, while the 30-year
bond CA30YT=RR climbed 28 Canadian cents to C$116.10 to yield
4.024 percent.
  (Reporting by Jennifer Kwan and Claire Sibonney; editing by
Peter Galloway)