CANADA FX DEBT-C$ flat ahead of rate decision, brushes off GDP

Mon May 30, 2011 4:38pm EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article
[-] Text [+]

 * C$ closes at C$0.9771 vs US$; rangebound ahead of BoC
 * Bond prices little changed
 * Volume light with U.S., UK markets closed
 * Q1 GDP strongest in a year, slightly below consensus
 (Updates to close, adds details, quotes)
 By Claire Sibonney
 TORONTO, May 30 (Reuters) - Canada's dollar closed little
changed on Monday as growth data offered few surprises ahead of
an interest rate decision on Tuesday in which the central bank
is expected to stay on hold.
 Canada's economy gathered speed in the first quarter,
expanding at its fastest pace in a year, as businesses ramped
up investment and rebuilt inventories, though economists warned
the growth spurt would not last long. [ID:nN30235278]
 Growth came in at an annualized rate of 3.9 percent in the
quarter, slightly below Bank of Canada and market
 Still, the central bank is widely anticipated to hold its
benchmark interest rate at 1.0 percent and keep rates steady
until the third quarter as growth slows. [ID:nN27269933]
 "Somewhat disappointing, though obviously backwards looking
and still a strong print," said Camilla Sutton, chief currency
strategist at Scotia Capital.
 "What matters from here is really what transpires, I think
most people have factored in that Q2 is going to be relatively
weak just based on supply chain disruptions," she added, noting
the the earthquake in Japan and its negative impact on the auto
industry in particular.
 The Canadian dollar initially firmed on the data, but
quickly pared those gains. Volumes were light with the U.S. and
UK traders on holiday.
 The currency CAD=D4 ended the North American session at
C$0.9771 to the U.S. dollar, or $1.0234, nearly unchanged from
Friday's close at C$0.9773 or $1.0232.
 Looking ahead to the next session, analysts will be fixed
on any nuances in language from the Bank of Canada statement.
 "Essentially we expect to see some recognition that global
headwinds have increased and that inflation in Canada might be
slightly softer," added Sutton. "But all in all we expect to
have a fairly neutral statement, very similar to the last
  If the bank statement is more hawkish than expected it
could prompt dealers to raise their bets for future rate hikes.
This would likely push up the Canadian dollar and weigh on
interest-rate sensitive T-bill and bond prices.
 If the bank produces a statement similar to the one in
April -- with no signal it plans raise rates soon -- it could
further weigh on the currency and help underpin bond prices.
 The day's range held between C$0.9752-C$0.9790, close to
where it's stood for the past week of uninspiring moves.
 Sutton was hopeful that Tuesday's Bank of Canada statement
could drive more momentum in the currency, noting a break
through the 100-day moving average around C$0.9755 would be
important for Canadian-dollar bulls.
 "If we can close below there that would be somewhat
encouraging and put us more in line with most of the other
currencies that are trading between their 50- and 100-day
moving averages," she said.
 Flat commodity prices did little to drive direction for the
resource-based currency. [O/R] [GOL/] [MET/L]
 With no direction from U.S. Treasuries, Canadian bond
prices were little changed. Canada's two-year bond CA2YT=RR
was up 1 Canadian cent to yield 1.500 percent, while the
10-year bond CA10YT=RR was down 3 Canadian cents to yield
3.066 percent.
 (Editing by Jeffrey Hodgson)