CANADA FX DEBT-C$ little changed with focus on Bank of Canada
July 14, 2014
By Leah Schnurr
The Canadian dollar was little changed against the greenback on Monday, stabilizing after a two-week low hit in the previous session as a monetary policy statement from the Bank of Canada due later in the week kept investors cautious.
While the central bank is widely expected to hold rates at 1 percent, where they have been since 2010, the market will be parsing the bank’s statement for its reaction to recent stronger-than-expected inflation.
Most analysts expect that the Bank of Canada will stick to the neutral tone it has held since last October, especially after Friday’s disappointing labor market report.
“Over the last few weeks with the economic data we’ve seen, the domestic environment in Canada has really weakened off, so I think we’ll see the Bank of Canada tip their hat to that,” said Scott Smith, senior market analyst at Cambridge Mercantile Group in Calgary.
“There’s still a lot of slack in the overall economy that needs to be worked out before they can start looking at tightening monetary policy.”
The Canadian dollar was at C$1.0731 to the greenback, or 93.19 U.S. cents, a tad stronger than Friday’s close of C$1.0734, or 93.16 U.S. cents.
The loonie gained 1.6 percent through June in a rally fueled by the robust inflation reading, higher oil prices and short covering. But the currency’s momentum stalled last week as the Canadian dollar was hit hard by a report that showed the economy lost jobs in June.
In the aftermath of that jobs report, Wednesday’s statement from the Bank of Canada could prove to be a fairly pivotal turning point for the Canadian dollar, said Smith.
“I think we’ll get up into that C$1.0815 level if we do get a reiteration of their neutral-to-dovish message,” said Smith.
In a relatively light week for domestic data, the inflation report due at the end of the week will also be a focal point. Inflation is forecast to hold at a 2.3 percent annualized rate in June.
South of the border, investors will be taking in testimony from Federal Reserve Chair Janet Yellen on Tuesday and Wednesday.
Canadian government bond prices were mostly lower across the maturity curve, though the two-year was up half a Canadian cent to yield 1.104 percent. The benchmark 10-year was down 6 Canadian cents to yield 2.223 percent.