March 1, 2017 / 10:06 PM / 5 months ago

CANADA FX DEBT-C$ hits 5-week low as dovish Bank of Canada weighs

3 Min Read

 (Adds broker comment, updates prices to close)
    * Canadian dollar settles at C$1.3335, or 74.99 U.S. cents
    * Loonie touches its weakest since Jan. 20 at C$1.3357
    * Bond prices lower across yield curve

    By Alastair Sharp
    TORONTO, March 1 (Reuters) - The Canadian dollar weakened to
a fresh five-week low against its U.S. counterpart on Wednesday,
pressured by bets the Federal Reserve could hike U.S. interest
rates in March and a cautious tone from the Bank of Canada.
    The Canadian dollar          settled at C$1.3335 to the
greenback, or 74.99 U.S. cents, weaker than Tuesday's close of
C$1.3281, or 75.30 U.S. cents and its weakest close since early
January.
    At one point the currency touched C$1.3357, its weakest
intra-day level since Jan. 20.
    "If you're a Canadian exporter that is long USD, then this
is a move I think you have been waiting for," said Brad
Schruder, director of corporate sales and structuring at BMO
Capital Markets.
    "If there's just a horrific Q4 GDP number for Canada out
tomorrow, sure I can see people wanting to sell Canada a little
bit more, but at this point in time it feels like a March rate
hike from the Fed is almost baked in and I just don't see any
compelling reason to change views on the Canadian dollar," he
said.
    Canada's economy is expected to have grown at an annualized
2 percent rate in the fourth quarter, according to a Reuters
poll.         
    The country's central bank held rates steady on Wednesday as
it stayed focused on the "significant uncertainties" facing the
economy.             
    "I think they will keep doing that until we get some clarity
on U.S. policy," said Adam Cole, global head of FX strategy at
RBC Capital Markets.
    The bank said it was continuing to monitor the risks
contained in its January Monetary Policy Report, which included
a "protectionist tilt" in U.S. trade policy.
    In a speech to Congress on Tuesday evening, U.S. President
Donald Trump did not comment on a proposed border adjustment tax
that analysts say would particularly hurt the loonie if
implemented.                         
    The perceived chances of a Canadian rate increase by the end
of the year dipped to 29 percent after the central bank's
announcement from 35 percent prior, data from the overnight
index swaps market showed.           
    In contrast, chances of a Fed hike in March surged after
hawkish comments from two Fed officials, while U.S. factory data
added to greenback support       .                         
    Canadian government bond prices were lower across the yield
curve, with the two-year            price down half a Canadian
cent to yield 0.761 percent and the benchmark 10-year
            falling 49 Canadian cents to yield 1.69 percent.

 (Additional reporting by Fergal Smith; Editing by Nick
Zieminski and James Dalgleish)
  
 

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