CANADA FX DEBT-C$ falls after soft economic data

Mon Aug 30, 2010 11:38am EDT
 
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 * C$ falls to to 94.82  U.S. cents
 * Bonds edge higher as U.S. stocks ease
 * Canada producer prices up, current account deficit rises
 (Recasts, adds details, quotes)
 By Claire Sibonney
 TORONTO, Aug 30 (Reuters) - The Canadian dollar sagged
against the greenback on Monday, taking its cue from other
risk-related currencies and softer than expected Canadian
economic data.
 Canada's July producer price index edged up just 0.1
percent in July, compared with expectations of 0.4 percent.
[ID:nSCLUJE64Z]  As well, the country's current account deficit
rose more than expected in the second quarter. [ID:nN30171389]
 "It has been very much in line with weakness in sterling
and euro, a more coordinated move. Of course we had weaker
Canadian producer price data out before," said Sacha Tihanyi,
currency strategist at Scotia Capital.
 "So that's a weaker fundamental backdrop to set the stage
... it would maybe suggest Canada doing a little less well
ahead of the Bank of Canada next week," he added, referring to
the central bank's next interest rate announcement on Sept. 8.
 Risk plays were capped as U.S. stocks dipped. Stock market
confidence in the flagging U.S. economic recovery failed to be
ignited by data that showed gains in U.S. consumer spending and
income and by a flurry of mergers-and-acquisition activity. A
$1 fall in oil crude oil futures to around $74 a barrel also
dampened sentiment. [.N] [O/R]
 At 11:04 a.m. (1504 GMT), the Canadian dollar was at
C$1.0546 to the U.S. dollar, or 94.82 U.S. cents, down from
C$1.0524 to the U.S. dollar, or 95.02 U.S. cents, at Friday's
close.
 Tihanyi said Monday's range would see support for the
Canadian currency around C$1.05 and resistance around C$1.06.
 Tuesday's release of Canada's second-quarter gross domestic
product data may help seal expectations of whether the Bank of
Canada will raise interest rates next month.
 After bolting out of the gate in the first quarter with
growth of 6.1 percent, the April-June measure of economic
expansion in Canada is likely to be decidedly slower, at less
than half that pace. [ID:nN2750745]
 Economists surveyed by Reuters forecast, on average, 2.5
percent annualized growth in second-quarter GDP.
 While Canada's primary securities dealers forecast the
central bank will raise its key rate by a quarter-point to 1.0
percent, market pricing is less certain. Markets on Monday, as
measured by a Reuters calculation of yields on overnight index
swaps, are leaning towards the bank keeping the rate unchanged.
BOCWATCH
 Friday's U.S. payrolls report may also sway rate
expectations, given the Bank of Canada has suggested further
interest rate hikes would be weighed against domestic and
global economic developments.
 "Tomorrow's focus is on GDP and is important in terms of
how much of a slide there's been since Q1," said Jack Spitz,
managing director of foreign exchange at National Bank
Financial.
 "The Bank of Canada is widely expected to once again
increase interest rates unless the numbers tomorrow and
Friday's payroll numbers disappoint."
 The mixed sentiment on Canadian interest rate expectations
and a slower world growth profile have kept government bond
prices supported in recent weeks.
 Canadian government bonds tracked U.S. Treasuries higher on
Monday, as traders clawed back some of the sharp losses on
Friday, when U.S. Federal Reserve Chairman Ben Bernanke
signaled the U.S. central bank was not on the verge of a new
round of bond buying. [US/]
 The two-year bond CA2YT=RR gained 10 Canadian cents to
yield 1.261 percent, while the 10-year bond CA10YT=RR jumped
72 Canadian cents to yield 2.792 percent.
 (Additional reporting by Ka Yan Ng; editing by Peter
Galloway)