CANADA FX DEBT-C$ unchanged as Bank of Canada rate decision in focus

Tue Jul 14, 2015 4:51pm EDT
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(Adds analyst's comment, closing figures)
    * Canadian dollar closes at C$1.2740, or 78.49 U.S. cents
    * Bond prices higher across the maturity curve

    By Solarina Ho
    TORONTO, July 14 (Reuters) - The Canadian dollar closed
unchanged against the greenback on Tuesday ahead of a
much-anticipated Bank of Canada interest rate decision on
    The currency had swung widely early in the session, in part
due to unexpectedly weak U.S. retail sales data for June, before
settling down.
    Markets are pricing in about a 47 percent chance the central
bank will announce a 25-basis-point rate cut for the second time
this year. The first cut was in January and the bank's benchmark
rate is now 0.75 percent.
    "The Bank of Canada holds all the cards for tomorrow for the
fate of the loonie," said Rahim Madhavji, president of "I think we're going to see a big move
tomorrow regardless of how it comes out."
    The Canadian dollar finished the day at C$1.2740 to
the greenback, or 78.49 U.S. cents, exactly where it closed on
    It briefly touched C$1.2716 immediately after the U.S. data,
its strongest level of the session, before sliding back. It had
weakened to C$1.2805 overnight.
    U.S. retail sales fell 0.3 percent to the weakest level
since February, while May figures were revised lower, raising
some concern that the U.S. economy was slowing again. Economists
polled by Reuters had predicted a rise of 0.2 percent.
Meanwhile, U.S. import prices also slid unexpectedly last month,
as the lingering effects of a strong U.S. dollar offset rising
costs for petroleum products. 
    Market participants will also be watching the Bank of
Canada's rate decision, due at 10:00 a.m. EDT (1400 GMT), to see
what kind of tone the central bank will adopt in its policy
    "There's a little bit of humble pie that the Bank of Canada
will have to eat because it was only a couple of months ago that
they were saying the economy was okay and things are going to
bounce back," Madhavji said.
    "But all of a sudden, people are talking about another rate
cut. It just goes to show how unreliable their forecast can be.
It's not really their fault ... But they're kind of caught in a
hard place."
    Canadian government bond prices were higher across the
maturity curve, with the two-year price up 3.5
Canadian cents to yield 0.458 percent and the benchmark 10-year
 rising 37 Canadian cents to yield 1.648 percent.
    The Canada-U.S. two-year bond spread was -18.3 basis points,
while the 10-year spread was -74.9 basis points.

 (Reporting by Solarina Ho; Editing by Nick Zieminski; and Peter