CANADA FX DEBT-C$ rises to 1-week high ahead of rate decision
* C$ rises to C$0.9725 to the U.S. dollar, or $1.0283
* Bond prices fall
* Bank of Canada seen keeping rates steady
* Global risk sentiment lifted by Greece bailout hopes
TORONTO, May 31 (Reuters) - Canada's dollar rose to its highest in more than a week against the U.S. dollar on Tuesday, while bond prices fell, ahead of the Bank of Canada's rate decision and as global risk sentiment was lifted by Greece bailout hopes.
The central bank is widely anticipated to keep its key interest rate unchanged at 1.0 percent on Tuesday. Most market participants say the rates will stay that way until the third quarter when the outlook on the euro zone debt crisis is clearer and North American economic growth is on firmer footing. [ID:nN27269933] [CA/POLL]
The day's trading will likely be driven by the Bank of Canada's statement on Tuesday, as market players look for any new undertones on the economic outlook and interest rates.
"They've been managing expectations a lot," said Charles St-Arnaud, Canadian economist and currency strategist at Nomura Securities International in New York.
"Often, even if data was good, (they've) been trying to sound more on the pessimistic side so that there's not that much rate hikes being priced in and avoiding having too much appreciating pressure on the Canadian dollar."
He said the tone of the statement will probably be more on the cautious side and that he would mainly look for how the central bank will characterize the Canadian growth outlook.
The rate decision comes after data showed 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]
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.
A more hawkish-than-expected statement by the central bank could spur 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, particularly in the short-dated issues.
At 8:10 a.m. (1210 GMT), Canada's two-year bond CA2YT=RR was down 5 Canadian cents to yield 1.526 percent, while the 10-year bond CA10YT=RR was down 10 Canadian cents to yield 3.075 percent.
The Canadian dollar CAD=D4 was at C$0.9725 to the U.S. dollar, or $1.0283, up from C$0.9771 to the U.S. dollar, or $1.0234, at Monday's close.
The currency, which has been languishing in a C$0.9735-C$0.9817 range in the last six sessions, popped as high as C$0.97 to the U.S. dollar, or $1.0309, its highest since May 20.
The rally was in line with a global rise in riskier assets, which was helped by a report that Germany could make concessions to facilitate a new aid package for Greece. [MKTS/GLOB]
Berlin, which along with some other countries had resisted extra funding, is considering dropping its push for an early rescheduling of Greek bonds, the Wall Street Journal said. [ID:nL3E7GV07I]
Later in the session, Canadian Finance Minister Jim Flaherty is set to meet with private sector economists to round out growth forecasts ahead of the introduction of the federal budget on June 6. [ID:nN25109201]
(Reporting by Ka Yan Ng; Editing by Padraic Cassidy)
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