CANADA FX DEBT-C$ pinched by strong greenback, Bank of Canada in focus

Mon Jul 13, 2015 4:52pm EDT
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(Adds central bank details, closing figures, market commentary)
    * Canadian dollar at C$1.2740 or 78.39 U.S. cents
    * Bond prices mixed across the maturity curve

    By Solarina Ho
    TORONTO, July 13 (Reuters) - The Canadian dollar retreated
against a stronger U.S. dollar on Monday, as market attention
shifted toward the Bank of Canada and the U.S. Federal Reserve
after a debt deal was finally reached between Greece and its
international creditors. 
    The Canadian dollar's moves are now expected to remain
limited ahead of a closely watched Bank of Canada interest rate
decision due Wednesday.
    "The prospect of Bank of Canada (cutting rates) is weighing
a little bit on the currency. That explains some of the early
weakness today," said Mark Chandler, head of Canadian fixed
income and currency strategy at RBC Capital Markets.
    Markets had priced in about a 50 percent chance of a 25
basis point rate cut following a string of disappointing
Canadian economic data that indicated economic growth in the
second quarter would be stagnant after a contraction in the
first quarter. 
    But Friday's stronger-than-expected employment report for
June tempered some of those expectations, with markets dropping
the odds of a rate cut to about 39 percent. 
    The Canadian dollar, which was a mid-performer
against other key currencies, finished at C$1.2740 to the
greenback, or 78.49 U.S. cents, softer than the Bank of Canada's
official close of C$1.2679, or 78.87 U.S. cents, on Friday.
    During the session, the loonie traded between C$1.2668 and
    "There's still that idea of Canada being dovish, relative to
the U.S.," said Chandler, who expressed some caution about the
falling market odds.
    The U.S. dollar, meanwhile, rose against a basket of key
currencies on Monday following the Greek debt deal, which
renewed focus on the prospects the Fed might hike interest rates
in September, a move that would stand in sharp contrast to
Canada. Comments from central bank Chair Janet Yellen and Boston
Fed President Eric Rosengren on Friday suggested a September
move could be likely.  
    Canadian government bond prices were mostly higher across
the maturity curve, with the two-year price up 5
Canadian cent to yield 0.473 percent and the benchmark 10-year
 climbing 1 Canadian cent to yield 1.684 percent.
    The Canada-U.S. two-year bond spread was -20.4 basis points,
while the 10-year spread was -76.3 basis points.

 (Reporting by Solarina Ho; Editing by Peter Galloway and
Cynthia Osterman)