CANADA FX DEBT-C$ slips as chances of May rate hike dwindle

Thu May 26, 2011 5:05pm EDT
 
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article
[-] Text [+]

 * C$ ends down at C$0.9787 to the U.S. dollar, or $1.0218
 * Bond prices rally, track U.S. Treasuries higher
 * Reuters poll: First 2011 Canada rate hike seen in Q3
 (Updates to close, adds details, comments)
 By Claire Sibonney
 TORONTO, May 26 (Reuters) - The Canadian dollar eased
against the U.S. currency on Thursday and bond prices rallied
as market players lowered expectations that the Bank of Canada
will raise interest rates next week.
 Simultaneously, the safe-haven greenback benefited broadly
from renewed fears over euro zone sovereign debt. Comments from
Eurogroup President Jean-Claude Juncker rattled investors and
raised doubts about whether the International Monetary Fund
would release Greece's next round of financial assistance at
the end of June. [FRX/]
 North American equities and U.S. crude prices settled
slightly higher in a choppy trading session, but not enough to
nudge the commodity-driven Canadian dollar out of its recent
range. [.N] [.TO] [O/R]
 Disappointing economic data and dovish comments from Bank
of Canada Governor Mark Carney have left the market to
speculate now that the bank will not raise rates until the
third quarter.
 It is likely to pass on a rate hike during the summer as
the global commodity boom is failing to deliver a big enough
lift to the country's export-based economy to warrant one.
[ID:nN26119785]
 Still, market participants were hesitant on Thursday to
place bets on the Canadian dollar ahead of the central bank's
next policy announcement date on May 31.
 "It feels like we're a little bit sidelined until the Bank
of Canada announcement next Tuesday," said Shane Enright,
executive director of foreign exchange sales at CIBC World
Markets.
 A Reuters poll of economists and strategists on Thursday
forecast the bank will raise interest rates sometime in the
third quarter, with respondents split on whether there will be
one or two 25 basis point increases during the quarter. The
bank's key policy rate has remained at 1 percent since
September. [ID:nN26157496]
 "Certainly, market expectations have been pared back enough
that a relatively neutral (Bank of Canada) statement at this
stage I don't think would hurt the Canadian dollar too badly,
whereas you wouldn't have said that three or four weeks ago,"
Enright said.
 "Probably the chance for a surprise would be anything that
sounds a little more upbeat from the bank and gets the market
thinking that perhaps an early fall move ... if you got
anything that got the market thinking that the bank was going
to move ahead of October, I think that would be enough maybe to
spark a bit of a Canadian dollar strength."
 The Canadian dollar CAD=D4 ended the North American
session at C$0.9787 to the U.S. dollar, or $1.0218, down from
C$0.9779 to the U.S. dollar, or $1.0226, at Wednesday's close.
 Earlier in the day, the Canadian dollar tested near-term
support between C$0.9815 and C$0.9820. Enright noted that the
recent 100-day moving average around C$0.9760, a recent
resistance level for the U.S. dollar, was turning into
support.
 "It's uninspired," David Watt, senior currency strategist,
at RBC Capital Markets, said of Thursday's activity, noting a
lack of domestic economic data until next week's quarterly GDP
report and Bank of Canada announcement.
 Watt said he expected the Canadian dollar's next
substantial move would be higher, though it will not be without
challenges.
 "You've got to find the trigger to do that. It's not as
easy to come by for Canada as it is for some other currencies,"
he said.
 Also weighing on riskier assets on Thursday, initial
jobless claims unexpectedly rose in the latest week, while U.S.
gross domestic product came in below analysts' expectations.
[nCAT005446] [nN26234110]
 Canadian bond prices rallied, tracking Treasuries up after
a solid U.S. seven-year auction and safe-haven buying due to
the disappointing U.S. economic data and worries over Greece.
[US/]
 Canada's interest-rate sensitive two-year bond CA2YT=RR
jumped 11 Canadian cents to yield 1.524 percent, while the
10-year bond CA10YT=RR climbed 39 Canadian cents to yield
3.043 percent.
 (Additional reporting by Ka Yan Ng; editing by Peter Galloway)