5 Min Read
* 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)