April 13, 2011 / 12:41 PM / 9 years ago

CANADA FX DEBT-C$ edges up, BoC economic forecasts eyed

 * C$ rises to $1.0406
 * Bond prices give back some gains
 * Bank of Canada to provide details on economic outlook
 TORONTO, April 13 (Reuters) - The Canadian dollar was
slightly firmer against the U.S. dollar on Wednesday morning,
while government bonds were lower as risk sentiment reversed
from Tuesday and ahead of detailed economic projections from
the Bank of Canada.
 Overall, Wednesday was mostly a mirror image of Tuesday,
reflecting investors' current tendency to be risk-on one day
and risk-off the next. [MKTS/GLOB]
 World stocks were up after recent declines, and
better-than-expected earnings from JPMorgan served as a
positive backdrop. Oil prices firmed as investors sought fresh
opportunities to bet on riskier assets.
 "All of a sudden everything that was bad yesterday is
good," said Michael O'Neill, managing director at
Knightsbridge Foreign Exchange.
 The Canadian dollar had a quiet overnight session after
retreating from 3-1/2 year highs on Tuesday on further
scaled-back expectations of near-term interest rate hikes.
 "There were a lot of guys out there looking for a Bank of
Canada rate hike in May," said O'Neill.
 The central bank, which held interest rates steady at 1
percent as expected on Tuesday, put on a balancing act by
raising its growth estimates, but it also used strong language
on Canadian dollar's strength. [ID:nN12159489]
 A strong Canadian dollar is a concern because it could
hamper economic growth in an export-oriented country, and
O'Neill expects the Bank of Canada will not raise interest
rates until the U.S. starts getting ready to do so.
 Market focus is now on the Bank of Canada's Monetary Policy
Report and news conference on Wednesday morning, where
investors hope to find the underlying reasons behind their
latest economic projections.
 Overnight index swaps, which trade based on expectations
for the key central bank rate, show a 6.43 percent chance of a
rate hike on May 31, the next policysetting. A September rate
hike remains fully priced in by the market with a 25 basis
point rise seen. BOCWATCH
 In a Reuters poll of economists and strategists released
last week, however, the median forecast was for the bank to
make the first interest rate hike of the year on July 19.
 At 8:20 a.m. (1220 GMT), the Canadian dollar CAD=D4 was
at C$0.9610 to the U.S. dollar, or $1.0406. That is up from
C$0.9631 to the U.S. dollar, or $1.0383, at Tuesday's North
American finish, which was the Canadian dollar's weakest close
in a week.
 Government bonds gave up a portion of Tuesday's big gains
made on the back of a selloff in equities and revised
expectations on near-term Canadian interest rate hikes.
 The two-year bond CA2YT=RR, which is especially sensitive
to Bank of Canada policy moves, was off 4 Canadian cents to
yield 1.879 percent, while the 10-year bond CA10YT=RR shed 28
Canadian cents to yield 3.445 percent.
 (Reporting by Ka Yan Ng, Editing by Kenneth Barry)

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