CANADA FX DEBT-Loonie dips after Poloz remarks as rates seen on hold

Thu Nov 21, 2013 10:01am EST
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* C$ at C$1.0491 vs US$, or 95.32 U.S. cents
    * Poloz comments bolster view of low rates for longer
    * Bond prices mixed across the curve

    By Leah Schnurr
    TORONTO, Nov 21 (Reuters) - The Canadian dollar weakened
against the greenback on Thursday as comments from the head of
the Bank of Canada bolstered an expectation that interest rates
will remain low for some time.
    In an appearance before a Senate committee late on
Wednesday, Bank of Canada Governor Stephen Poloz said the
central bank's economic analysis differed from that of the
Organization of Economic Cooperation and Development (OECD),
which recommended that it start raising interest rates as soon
as 2014. 
    Last month, the central bank surprised markets with a major
shift in policy, dropping any mention of an eventual rise in
rates after 18 months of explicitly stating that rate hikes were
on the horizon. 
    "They don't agree, essentially, with what the OECD was
projecting, (which is) higher rates at the end of 2014," said
Benjamin Reitzes, senior economist and foreign exchange
strategist at BMO Capital Markets in Toronto.
    "(Poloz) more or less said that, or implied it at least, and
that's driving short-term rates a little lower in Canada and
that's weakening the dollar this morning." 
    A recent Reuters poll of primary dealers showed the Bank of
Canada is expected to keep its key rate at 1 percent well into
    The Canadian dollar was at C$1.0491 versus the U.S.
dollar, or 95.32 U.S. cents, weaker than Wednesday's North
American close at C$1.0447, or 95.72 U.S. cents.
    Investors were also trying to gauge the time-frame for
monetary-policy changes south of the border after U.S. Federal
Reserve minutes released Wednesday showed officials felt that
stimulus could be scaled back in the next few months if the
economy improves enough. 
    Markets are trying to position for whether the Fed will
begin to taper its purchases at its next meeting in December, or
hold off until 2014. 
    The loonie slipped to a session low shortly after data
showed the number of Americans filing for new unemployment
benefit claims fell more than expected last week, suggesting
there was some strengthening of conditions in the U.S. labor
market, which is closely watched by the Fed. 
    "Yesterday's minutes tell us that tapering is at least an
option in December, you'll need to see better data before then,"
said Reitzes.
    The Canadian dollar is seen benefiting from the Fed waiting
longer to slow its quantitative easing as that would likely
increase investors' risk appetite and weigh on the U.S. dollar.
    Canadian bond prices were mixed across the maturity curve,
with the two-year bond up 5-1/2 Canadian cents to
yield 1.122 percent, while the benchmark 10-year bond
 was down 14 Canadian cents to yield 2.653 percent.