CANADA FX DEBT-C$ falls on uncertainty, weak data

Mon Aug 30, 2010 4:45pm EDT
 
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   * C$ falls to to 94.30  U.S. cents
 * Bonds edge higher as U.S. stocks ease
 * Canada producer prices up, current account deficit rises
 (Updates to close, adds details, quotes)
 By Claire Sibonney
 TORONTO, Aug 30 (Reuters) - The Canadian dollar sagged
against the greenback on Monday, taking its cue from soft
domestic economic data and worries about the U.S. recovery and
global growth.
 The Canadian dollar, and other riskier currencies such the
euro and sterling, also came under pressure as yen rose broadly
after the Bank of Japan's decision to expand cheap loans to
banks disappointed investors who had looked for more aggressive
measures to curb the yen's strength.
 "It was kind of a risk-off sort of feel," said Shaun
Osborne, chief currency strategist at TD Securities.
 "The Bank of Japan decision was really quite disappointing
relative to what the markets expected or hoped the Bank of
Japan would do. It was a relatively benign easing."
 As well, data on Monday showed Canada's July producer price
index edged up just 0.1 percent in July, compared with
expectations of 0.4 percent. [ID:nSCLUJE64Z] Meanwhile, the
current account deficit rose more than expected in the second
quarter. [ID:nN30171389]
 "That's a weaker fundamental backdrop ... it would maybe
suggest Canada doing a little less well ahead of the Bank of
Canada next week," said Sacha Tihanyi, a currency strategist at
Scotia Capital, referring to the central bank's next interest
rate announcement on Sept. 8.
 Elsewhere, U.S. stocks fell as a statement from President
Barack Obama fell short of addressing worries the recovery is
faltering, while U.S. crude oil figures settled lower after
three straight sessions of gains. [.N] [O/R]
 The Canadian currency ended the North American session at
C$1.0605 to the U.S. dollar, or 94.30 U.S. cents, down from
C$1.0524 to the U.S. dollar, or 95.02 U.S. cents, at Friday's
close.
 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 to 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.
 Osborne said if the data disappoints, it may spark further
weakness in the currency, however he does not expect it to
break beyond the recent range of around C$1.04 to C$1.0660 to
the U.S. dollar.
 "I think it would have to be exceptionally weak tomorrow to
drive the Canadian dollar much beyond C$1.0650-60."
 But for the next 24 to 48 hours, Osborne said the currency
is not seen weakening further than C$1.0665 or strengthening
beyond C$1.0425.
 Tugging in both directions for the currency, Canada's
primary securities dealers forecast the central bank will raise
its key rate by a quarter-point to 1.0 percent on Sept. 8, but
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
 Osborne noted the lack of direction on Monday was partly
due to a UK holiday robbing the markets of a bit more volume,
and he expected activity to pick up next week after the Labor
Day long weekend in Canada and the United States draws summer
to an unofficial end.
 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.
 BONDS FIRM
 The mixed sentiment on 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 U.S. equities drifted lower and 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 12 Canadian cents to
yield 1.251 percent, while the 10-year bond CA10YT=RR jumped
77 Canadian cents to yield 2.786 percent.
 (Additional reporting by Ka Yan Ng; editing by Rob Wilson)