CANADA FX DEBT-C$ stays weaker against greenback after Bank of Canada keeps rates steady
* Canadian dollar at C$1.2481, or 80.12 U.S. cents * Bond prices flat to higher across maturity curve By Alastair Sharp TORONTO, May 27 (Reuters) - The Canadian dollar stayed weaker against the greenback after the Bank of Canada said on Wednesday it is standing pat on interest rates even as the U.S. Federal Reserve has been readying markets for a rate increase. Since breaking weaker than C$1.20 to the U.S. dollar earlier in May, the loonie has steadily lost ground, and now threatens to breach C$1.25, its lowest since mid-April. The Canadian dollar was at C$1.2481 to the U.S. dollar, or 80.12 U.S. cents, late on Wednesday morning, weaker than Tuesday's official close of C$1.2427, or 80.47 U.S. cents. The currency largely brushed off the Bank of Canada's announcement that it will hold its benchmark rate steady. But some analysts questioned whether economic recovery in the United States will deliver the strong benefits to Canada that bank Governor Stephen Poloz said he expects as exports rise. There is a not-trivial risk that growth will disappoint, said Mazen Issa, a macro strategist at TD Securities. "We're not saying the bank is going to cut rates," he said. "But they may be way too optimistic in the growth outlook for the second half of the year." The U.S. dollar has gained broadly this week as traders have bet that a U.S. rate hike is pending amid a string of upbeat economic data south of the border. Speaking ahead of the Canadian rate announcement, the head of foreign exchange strategy at CIBC World Markets said some bets against the loonie could be pulled back if Poloz again pointed to economic recovery coming later of this year. But dips will be bought into, CIBC's Jeremy Stretch said, because "underlying metrics still favor the U.S. both in terms of growth and/or rate spreads." Canadian government bond prices were flat to higher across the maturity curve, with the two-year unchanged to yield 0.648 percent and the benchmark 10-year up 11 Canadian cents to yield 1.693 percent. The Canada-U.S. two-year bond spread was -1.2 basis points, while the 10-year spread was -47.1 basis points. (Editing by Peter Galloway)
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