CANADA FX DEBT-C$ slightly weaker ahead of Q2 GDP

Tue Aug 31, 2010 8:04am EDT
 
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   * C$ dips to 94.09 U.S. cents
 * Bonds edge up on low risk appetite
 * Next up: Canada Q2 and June GDP at 8:30 a.m. (1230 GMT)
 By Ka Yan Ng
 TORONTO, Aug 31 (Reuters) - Canada's currency was mildly
weaker against the U.S. dollar, while bond prices held firm,
ahead of second-quarter economic growth figures on Tuesday.
 North American stock index futures were pointing to a lower
open to track overseas equities markets, while commodity prices
were also softer, on a day where a big list of economic
indicators are on tap.
 Canadian markets were focused on second-quarter gross
domestic product data at 8:30 a.m. (1230 GMT), the final piece
of Canadian economic data that will feed into expectations of
whether the Bank of Canada will raise interest rates next
month.
 Economists surveyed by Reuters forecast, on average, 2.5
percent annualized growth in second-quarter GDP, much slower
than the first-quarter growth of 6.1 percent, and also below
the Bank of Canada's projection of 3 percent expansion.
[ID:nN2750745]
 "We're in an environment where there's a bit of reduced
risk appetite anyway today but I think that's a backdrop for
fear that Canadian economic momentum may surprise a bit on the
downside here," said Michael Gregory, senior economist at BMO
Capital Markets.
 "Growth is definitely coming in under where the Bank of
Canada had projected, and that's causing speculation about the
Bank of Canada pausing."
 Ahead of the data, markets on Tuesday were leaning towards
the bank keeping the rate unchanged, as measured by a Reuters
calculation of yields on overnight index swaps.BOCWATCH
 That compares to near-certainty among Canada's primary
securities dealers, who forecast the central bank will raise
its key rate by a quarter-point to 1.0 percent on Sept. 8, with
many arguing that rates are unsustainably low. The central bank
has raised rates twice since the beginning of June. [CA/POLL]
 "Everything on the ground now probably says it's okay to
continue raising rates if your mission is to eventually get
rates higher over time...but there are these clouds gathering
on the horizon," said Gregory.
 At 7:45 a.m. (1145 GMT), the Canadian currency was at
C$1.0628 to the U.S. dollar, or 94.09 U.S. cents, down from
C$1.0605 to the U.S. dollar, or 94.30 U.S. cents, at Monday's
close.
 The two-year bond CA2YT=RR gained 4 Canadian cents to
yield 1.227 percent, while the 10-year bond CA10YT=RR jumped
13 Canadian cents to yield 2.763 percent.
 Apart from the Canadian GDP data, there is also a rash of
U.S. data on Tuesday, including housing price data, consumer
confidence, and the Chicago PMI. ECON
 Minutes from the U.S. Federal Reserve's last board meeting
are also due, giving investors further insight into divisions
within the Federal Open Market Committee and its August 10
decision to buy longer-term Treasury securities.
 (Reporting by Ka Yan Ng;Editing by Chizu Nomiyama)