CANADA FX DEBT-C$ edges higher, in holding pattern ahead of BoC

Fri May 27, 2011 8:36am EDT
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   * C$ up at C$0.9766 to the U.S. dollar, or $1.0249
 * Bond prices flat to lower
 TORONTO, May 27 (Reuters) - The Canadian dollar edged up
against the U.S. currency on Friday morning, while bond prices
were mildly lower, as markets watchers trained their sights on
Tuesday's Bank of Canada rate decision.
 The Canadian dollar moved in a holding pattern, remaining
comfortably in the same range all week, as market participants
have been increasingly guarded about placing new bets ahead of
the central bank's next policy announcement date on May 31.
 On top of that, the euro zone's worsening debt crisis and
worries about the uneven U.S. economic recovery are some of the
key risks that have rattled market sentiment.
 "The momentum in rates markets towards pushing higher is
just very difficult to get in front of at this point with a lot
of the risk in the global economy tilted to the downside," said
David Tulk, chief Canada macro strategist at TD Securities.
 "Those are sufficiently alarming to keep people in the
safety of government debt."
 Downside risks have also been highlighted by Bank of Canada
Governor Mark Carney, who earlier this month gave an
influential speech that forced investors to rethink just how
much soaring prices for oil and other commodities really help
economic growth. [ID:nN26119785]
 In response, swaps markets now reflect a lower likelihood
that the central bank will raise rates soon. BOCWATCH
 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. Very few market participants expect the central bank
will resume raising rates on Tuesday, even after a Statistics
Canada report that is expected to show stellar first-quarter
economic growth in Canada.
 "The main event that will offset any hawkishness that comes
out of 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
 At 8:27 a.m. (1227 GMT), the Canadian dollar CAD=D4 was
at C$0.9766 to the U.S. dollar, or $1.0249, up mildly from
Thursday's North American session close at C$0.9787 to the U.S.
dollar, or $1.0218.
 Canada's two-year bond CA2YT=RR was little changed,
yielding 1.541 percent, while the 10-year bond CA10YT=RR
slipped 12 Canadian cents to yield 3.058 percent.
 (Reporting by Ka Yan Ng, Editing by Chizu Nomiyama)