September 18, 2017 / 9:15 PM / 3 years ago

CANADA FX DEBT-C$ weaker after Bank of Canada talks of its strength

 (Adds details, commentary on Bank of Canada, updates prices)
    * Canadian dollar at C$1.2296, or 81.33 U.S. cents
    * Bond prices higher across the yield curve
    * 10-year yield touches a nearly 3-year high at 2.119

    By Alastair Sharp
    TORONTO, Sept 18 (Reuters) - The Canadian dollar weakened
sharply against the U.S. currency on Monday as a Bank of Canada
policymaker said the currency's strength will be a factor in
future rate decisions. 
    Bank of Canada Deputy Governor Timothy Lane said the central
bank, which has hiked rates twice since July, will "be taking
that (stronger Canadian dollar) into account pretty strongly in
making our decisions" after a speech in Saskatoon, Saskatchewan.
    Scotiabank strategists said Lane's comments suggest "a
cautious approach to additional rate increases" and perhaps make
it more likely the bank holds rates steady at an October
meeting. They expect the bank to raise rates again in December. 
    At 4 p.m. ET (2000 GMT), the Canadian dollar          was
trading at C$1.2296 to the greenback, or 81.33 U.S. cents, down
0.9 percent. It has strengthened steadily since topping out near
C$1.38 back in May.
    The currency traded in a range of C$1.2173 to C$1.2338, its
weakest level in almost two weeks.
    "Maybe this has just given some people reason to draw down
on some currency moves," said Mark McCormick, North American
head of FX strategy at TD Securities. "To me, this is the market
looking for a reason to cut some exposure to the Canadian
    He recommended buying Canadian dollars on any push above
C$1.23 and said he expects the pair to break C$1.20 in the next
three to six months and get to C$1.15 by mid-2018.
    The U.S. Federal Reserve is expected to announce the start
of a plan to trim its $4.5-trillion portfolio of assets on
Wednesday, with investors also looking for clues on whether U.S.
interest rates could rise again by year-end.             
    Canadian government bond prices were higher across the yield
curve, with the two-year            up 6 Canadian cents to yield
1.567 percent and the 10-year             up 8 Canadian cents to
yield 2.081 percent.
    Earlier in the session, the 10-year yield touched its
highest since October 2014 at 2.119 percent.    
    Foreign investors resumed their purchases of Canadian
securities in July following a divestment in the previous month,
led by a record acquisition of bonds, data from Statistics
Canada showed.             
    Canada's manufacturing sales and wholesale trade data for
July are due on Tuesday and Thursday, respectively. The August
inflation report and retail sales data for July are due on

 (Additional reporting by Fergal Smith; Editing by W Simon and
Lisa Shumaker)
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