CANADA FX DEBT-C$ jumps as market scales back rate cut expectations after Poloz

Tue Feb 24, 2015 4:57pm EST
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(Recasts throughout; adds closing figures, comment)
    * Canadian dollar ends at C$1.2496 or 80.03 U.S. cents
    * Bond prices mixed across the maturity curve

    By Solarina Ho
    TORONTO, Feb 24 (Reuters) - The Canadian dollar rallied
against its U.S. counterpart on Tuesday as markets scaled back
expectations of another interest rate cut in March following
comments from the Bank of Canada.
    BoC Governor Stephen Poloz said in a speech on Tuesday that
last month's surprise rate cut bought the central bank time to
see how the economy responds to the recent plunge in crude oil
    "We had speeches leading up to this one that sounded quite
dovish and would've suggested that a cut at the March meeting
was on the table and the market had positioned itself
accordingly," said Mazen Issa, senior Canada macro strategist at
TD Securities.
    Poloz's speech also indicated the bank may be taking a
wait-and-see approach, Issa said, which provided a significance
bounce to the Canadian dollar.
    "The conviction level of another cut is certainly much lower
than prior to the speech," he said. "To appreciate how
significant this speech was, going into it, the market was
really treating it with the same degree of reverence as an
interest rate meeting."
    The Canadian central bank blindsided markets in January with
a 0.25 percentage point rate cut. The market is now pricing in
about a 70 percent chance of another cut next week, a lower
probability than prior to the comments.
    The Canadian dollar, which was outperforming most
of its key counterparts, finished at C$1.2496 to the U.S.
dollar, or 80.03 U.S. cents. This was sharply higher than the
session's weakest trade at C$1.2662, or 78.98 U.S. cents and
Monday's close of C$1.2576, or 79.52 U.S. cents.
    Federal Reserve Chair Janet Yellen earlier on Tuesday said
in testimony to a congressional committee that the U.S. central
bank would consider interest rate hikes "on a meeting-by-meeting
basis" in an effort to increase the Fed's flexibility and mute
any potential market reaction ahead of move. 
    The loonie has been under pressure as slumping oil prices
weigh on the country's crude-exporting economy, and the monetary
policies of Canada and its largest trading partner diverge.
    "Assuming we don't see a significant deviation in oil
prices, then I would think dips in USD/CAD today will be worth
buying into," said Jeremy Stretch, head of foreign exchange
strategy at CIBC World Markets.
    Canadian government bond prices were mixed across the
maturity curve with long-term bonds higher. The two-year
 fell 16.5 Canadian cents to yield 0.471 percent and
the benchmark 10-year rose 39 Canadian cents to
yield 1.318 percent.

 (Reporting by Solarina Ho; editing by Peter Galloway, G Crosse)