CANADA FX DEBT-C$ at 1-1/2-month low as investors mull policy shift

Fri Oct 25, 2013 4:40pm EDT
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* C$ at C$1.0455 vs US$, or 95.65 U.S. cents
    * Loonie down for third session following central bank shift
    * Canadian bond prices higher across the curve

    By Leah Schnurr
    TORONTO, Oct 25 (Reuters) - The Canadian dollar languished
at a 1-1/2-month low on Friday after this week's policy shift by
the country's central bank led investors to believe interest
rates will stay at current low levels for longer than had been
    Highlighting weaker-than-expected growth and inflation, the
Bank of Canada on Wednesday dropped any mention of eventual rate
increases from its latest policy statement after more than a
year of warning that rates will one day have to rise.
    The central bank has kept its key rate at 1 percent since
2010, and analysts said the removal of its rate-rise bias gives
its policy stance a more neutral tone.
    "It signaled a fairly significant move and has been a bit of
a game-changer for the Canadian dollar," said Jack Spitz,
managing director of foreign exchange at National Bank Financial
in Toronto.
    Analysts had until recently largely expected the bank to
resume raising rates at the end of next year. A Reuters poll
showed Canada's primary dealers now expect the Bank of Canada to
keep its key rate at 1 percent well into 2015. 
    The Canadian dollar ended the North American
session at C$1.0455 versus the greenback, or 95.65 U.S. cents,
weaker than Thursday's close of C$1.0425, or 95.92 U.S. cents.
During the session it fell as low as C$1.0461, its lowest level
since early September.
    The loonie lost 1.6 percent this week, its worst week since
mid-June, according to Reuters data.
    "The viewpoint by and large on the Street now is that the
Canadian dollar is poised for additional weakness, and I think a
move through C$1.05 will likely attract more momentum," Spitz
    Canadian gross domestic product for August is on investors'
radar for next week, as is a two-day meeting of the U.S. Federal
Reserve's policy-setting committee. 
    The Fed surprised markets in September with its decision to
continue its stimulative bond-buying program at a $85 billion a
month pace, rather than trimming the amount.
    The loonie touched a three-month high following the
September Fed announcement but it has weakened since. Analysts
see the Canadian dollar benefiting from any delay in the Fed's
withdrawal from quantitative easing as the currency should
attract some risk appetite.
    Canadian government bond prices were higher across the
maturity curve. The two-year bond was up 3 Canadian
cents to yield 1.083 percent, and the benchmark 10-year bond
 added 8 Canadian cents to yield 2.416 percent.