Reuters: US Dollar Report: CANADA FX DEBT-C$ falls on weak GDP, fading stimulus hopes

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CANADA FX DEBT-C$ falls on weak GDP, fading stimulus hopes Jul 31st 2012, 19:19 Tue Jul 31, 2012 3:19pm EDT * C$ at C$1.0029 vs US$, or 99.71 * Earlier, C$ hit 11-wk high of C$1.0003, or 99.97 U.S. cents * Economy grows at slower-than-expected pace in May * Bond prices climb across the curve By Claire Sibonney TORONTO, July 31 (Reuters) - Canada's dollar slipped against its U.S. counterpart on Tuesday, retreating from an 11-week high that was within striking distance of parity on disappointing domestic growth data and fears central banks may not deliver enough stimulus to ease concerns about a global slowdown. Economic growth in Canada shifted into low gear in May on unexpected weakness in the manufacturing sector, casting doubt on the country's ability to distance itself from the disappointing performance plaguing the United States. The data helped solidify many analysts' view that the Bank of Canada will likely remain on the sidelines on raising interest rates until at least 2013 because growth doesn't look fast enough to cause inflationary pressures. A Reuters poll earlier this month showed most Canadian primary dealers expect the central bank to hold interest rates steady until mid-2013 or later. "Remember they were already calling for a fairly mediocre second quarter in their downgraded outlook," said Avery Shenfeld, chief economist for CIBC World Markets. "If anything they may be slightly on the high side of what looks reasonable. This won't be far off their projection. It's simply too slow to be thinking of raising interest rates any time soon." At 3:04 p.m. (1904 GMT), the Canadian dollar stood at C$1.0029 versus the greenback, or 99.71 U.S. cents, softer than Monday's North American session close at C$1.0018 against the greenback, or 99.82 U.S. cents. Earlier on Tuesday, the Canadian currency touched C$1.0003, or 99.97 U.S. cents, its firmest level since mid-May. The currency also softened as investors feared a recent rally built on hopes of new stimulus from central banks in the United States and Europe had been overdone. Riskier assets have been boosted by mounting expectation that the European Central Bank will revive its bond buying program to help lower the borrowing costs of debt-stricken Spain and Italy, while the U.S. Federal Reserve has been under renewed pressure to support flagging growth. Both central banks hold policy meetings this week. "People are just ... waiting to see what happens tomorrow with the Fed and Thursday with the ECB ... and that's why the range is just as tight as it is. Pretty much every currency is pretty tight today," said Benjamin Reitzes, senior economist and foreign exchange strategist at BMO Capital Markets. Last week, ECB President Mario Draghi said the ECB was ready to do whatever it takes to preserve the euro. "I think that people are reluctant to really take on any big positions either way because if the ECB does really act in a bold manner, you could get a big risk-on rally, and if they disappoint, well, look out," added Reitzes. Charles St-Arnaud, economist and currency strategist at Nomura Securities in New York, said the Canadian dollar could easily revisit parity on positive headlines from either the Fed or the ECB. He noted that any negative comments could take the currency back to C$1.0080. Canadian bond prices climbed across the curve, tracking U.S. Treasuries on the way up. Canada's two-year bond edged up 1 Canadian cent to yield 1.085 percent, and the benchmark 10-year bond gained 11 Canadian cents to yield 1.689 percent. Link this Share this Digg this Email Reprints

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