July 19, 2010 / 1:12 PM / 10 years ago

CANADA FX DEBT-C$ higher as Tuesday rate announcement eyed

   * C$ at 95.00 U.S. cents at 8:45 a.m.
 * Bank of Canada expected to raise key rate on Tuesday
 * Bond sag after big rally on Friday
 By John McCrank
 TORONTO, July 19 (Reuters) - Canada’s dollar was slightly higher versus its U.S. counterpart on Monday as cautious investors awaited guidance from the Bank of Canada on Tuesday along with a widely expected interest rate hike.
 The currency fell as low as C$1.0580, or 94.52 U.S. cents, matching its low point on Friday when it slumped to its weakest since July 7, but then unwound its losses, tracking equity prices higher.
 Flagging U.S. economic data releases in recent weeks helped spark a sell-off in equity markets on Friday. But market players were looking to company results, including from IBM (IBM.N) after the market close, for clues on the health of corporate America. U.S. stock futures pointed higher. For more see [ID:nN19186297].
 Crude oil CLc1 was nearly flat at around $76 a barrel, reversing earlier losses, and copper prices edged off a two-week low but were unable to gain much traction. [MET/L] [O/R]
 “The big worry is the growth outlook and a weakening U.S. economy isn’t good for the Canadian economy,” said Camilla Sutton, a currency strategist at Scotia Capital.
 She said that while Canada’s latest economic stats have been solid, they are backward looking and the fact that the country’s biggest trading partner is struggling points to possible weakness ahead.
 The United States absorbs about three-quarters of Canada’s exports.
 At 8:45 a.m., (1245 GMT) the Canadian dollar CAD=D4 was at C$1.0526 to the U.S. dollar, or 95.00 U.S. cents, up from C$1.0546 or 94.82 U.S. cents, at Friday’s North American session close.
 The Bank of Canada announces its latest interest rate decision on Tuesday. Markets have largely priced in a 0.25 percent increase in its key rate. BOCWATCH [CA/POLL]
 Interest rate hikes generally increase demand for the currency due to the possibility of higher returns but with the uncertain growth outlook the statement that comes along with the decision will be key, said Sutton.
 “I suspect that the Bank of Canada is going to sound more dovish than the market thinks right now,” she said.
 “I think that they are going to be increasingly concerned that the Canadian economy has been strong but that looking ahead the risks have increased materially, that it isn’t as strong as we get into Q3 and Q4.”
 While that may lead to further downside in the currency, softness in the U.S. dollar will likely limit the weakness, Sutton said.
 Canadian bond prices were slightly lower along with U.S. Treasury issues following a big rally on Friday.
 On the data front, Statistics Canada said that foreigners nearly doubled their purchases of Canadian securities in May from April to a record high C$23.16 billion ($22.06 billion), buying mainly federal government bonds. [ID:nN19128714]
 The May investment was triple the C$8 billion expected, on average, by analysts in a Reuters poll. [ID:nN19128714]
 Canada’s two-year bond CA2YT=RR dipped 2 Canadian cents to yield 1.57 percent, while the 10-year bond CA10YT=RR fell 12 Canadian cents to yield 3.17 percent.  (Editing by James Dalgleish)                                                      

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