CANADA FX DEBT-C$ hits 1-week low ahead of central bank statement
(Adds analyst's comment, updates prices to close) * Canadian dollar at C$1.0898 or 91.76 U.S. cents * Bond prices lower across the maturity curve By Leah Schnurr and Alastair Sharp TORONTO, June 2 (Reuters) - The Canadian dollar weakened to its lowest level against the greenback in more than a week on Monday, with investors waiting for the Bank of Canada's policy statement on Wednesday in which it is expected to hold rates steady. The caution muted the impact of encouraging economic data out of China. Chinese data can often boost the loonie given Canada's role as a major supplier of natural resources to the world's second-largest economy. Analysts expect the central bank to look past a recent increase in Canadian inflation and maintain a largely dovish tone that has helped weaken the currency since last year. "The Bank of Canada will probably be talking down the stronger inflation numbers we've been seeing lately," said Don Mikolich, executive director of foreign exchange sales at CIBC World Markets in Toronto. China's factory activity expanded at the fastest pace in five months in May as new orders rose. But that didn't stop the Canadian dollar from extending Friday's decline, which was prompted by disappointing domestic economic growth in the first quarter. Firmer yields for U.S. Treasuries following last week's rout also gave the U.S. dollar a lift to the detriment of the loonie, said Scott Smith, senior market analyst at Cambridge Mercantile Group in Calgary. The Bank of Canada, under Governor Stephen Poloz, has taken a neutral stance since late last year and has flagged its concerns about weak domestic inflation. Investors are watching to see if it will alter its tone after a recent pick up in prices. "There won't be a huge amount of large positions being taken heading into the Bank of Canada. That being said, I don't think we'll see a material deviation from what we've heard previously from Governor Poloz," Smith said. "He'll try to stay away from any language that materially strengthens the Canadian dollar because he knows how important a weak Canadian dollar is to the export sector and the economy, and hence the overall recovery in Canada." The Canadian dollar ended the session at C$1.0898 to the greenback, or 91.76 U.S. cents, not far from its session low of C$1.0905. The currency was weaker than Friday's close of C$1.0842, or 92.23 U.S. cents. CIBC's Mikolich said the breach of the C$1.09 level makes C$1.0925 the next technical level to watch. Canadian government bond prices were lower across the maturity curve, with the two-year down 2 Canadian cents to yield 1.064 percent and the benchmark 10-year down 30 Canadian cents to yield 2.282 percent. (Editing by Nick Zieminski and Peter Galloway)
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