CANADA FX DEBT-C$ edges higher vs US$; eyes on rate decision

Fri May 27, 2011 5:05pm EDT
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 * C$ ends up at C$0.9773 to the U.S. dollar, or $1.0232
 * Weak data weighs on greenback
 * Canada currency weak against Aussie, New Zealand peers
 * Bond prices mixed across curve
 (Updates to close, adds details, commentary)
 By Claire Sibonney
 TORONTO, May 27 (Reuters) - Canada's dollar edged higher
against a broadly weaker greenback on Friday, which was hurt by
sluggish U.S. data, even as many traders focused on Tuesday's
Bank of Canada interest rate decision.
 The U.S. economic outlook set the tone early after
worse-than-expected consumer spending and a sharp slide in
pending home sales added to a recent run of soft data.
 Markets expect tepid U.S. growth to force the Federal
Reserve to keep U.S. interest rates near zero well into 2012,
thus undermining the U.S. dollar's appeal to global investors.
 Slightly stronger equity markets and commodity prices also
helped the Canadian dollar hold its ground against the
 But it faltered across the board against the other major
currencies, falling to multi-year lows against its commodity
cousins, the New Zealand and Australian dollars. Analysts said
concern about the impact of sluggish U.S. growth was a factor.
 "The weaker the U.S. economy gets, the worse it is for the
Canadian economy and there have certainly been a lot of wobbles
data-wise coming out of the U.S. lately," said Steve Butler,
director of foreign exchange trading at Scotia Capital.
 Butler added that recent dovish remarks from Bank of Canada
Governor Mark Carney ahead of the May 31 policy announcement
has also weighed on the Canadian currency. [ID:nN26119785]
 "Mr. Carney has signaled he doesn't want to raise rates,
he's signaled that he's keeping an eye on the currency and I
think that really kind of derailed the 'Go Canada, go!'
sentiment in the market and now we're stuck flailing around a
little bit."
 Since Carney spoke on May 16, swaps traders have priced in
a reduced likelihood of rate hikes for the remainder of 2011.
 A Reuters poll of economists and strategists forecast the
bank will raise interest rates sometime in the third quarter.
 The Canadian currency  CAD=D4 ended the North American
session at C$0.9773 to the U.S. dollar, or $1.0232, up slightly
from Thursday's North American session close at C$0.9787 to the
U.S. dollar, or $1.0218. The day's range held between
C$0.9798-C$0.9754 and the currency was virtually flat for the
 "I think the Canadian dollar has been fixed to the U.S.
dollar and they haven't told us because it's been in a dismal
range the last couple sessions," added Butler.
 Looking ahead, he said a clear break of C$0.9810-C$0.9820
could provide some momentum.
 But until Tuesday's interest rate decision, investors are
seen staying largely on the sidelines, even though Canada is
expected to report stellar first-quarter economic growth on
Monday. ECONCA
 "The GDP report will be more than firmly offset by a very
neutral Bank of Canada that will reiterate a lot of the same
messages that were delivered in the April MPR and then repeated
by Mark Carney a couple of weeks back in his speech," said
David Tulk, chief Canada macro strategist at TD Securities.
 Canadian bond prices were mixed, mimicking moves in
steady-to-lower U.S. Treasuries. [US/]
 Canada's rate-sensitive two-year bond CA2YT=RR was up 4
Canadian cents to yield 1.507 percent, while the 10-year bond
CA10YT=RR slipped 21 Canadian cents to yield 3.069 percent.
 (Additional reporting by Ka Yan Ng; Editing by Jeffrey