CANADA FX DEBT-C$ up holds down as BoC tweaks position

Tue Mar 2, 2010 12:34pm EST Related News RPT-PREVIEW-Bank of Canada seen holding rates steady March 2Tue, Mar 2 2010CANADA FX DEBT-C$ rises in GDP data afterglow, bond yields upMon, Mar 1 2010CANADA FX DEBT-C$ rises, bonds fall after Q4 GDP beats estimatesMon, Mar 1 2010CANADA FX DEBT-C$ focuses on U.S. GDP data and risesFri, Feb 26 2010CANADA FX DEBT-C$ touches 2-week low as Greece, U.S. data weighThu, Feb 25 2010

* C$ advances to 96.81 U.S. cents, hits 6-week high

Currencies

* Bonds hold lower

* Bank of Canada holds rates, sees no early hike (Adds details)

By Ka Yan Ng

TORONTO, March 2 (Reuters) - Canada"s currency hit asix-week high against the U.S. dollar on Tuesday, while bondsheld lower, after the Bank of Canada left interest ratesunchanged, as expected.

The Canadian dollar rose as high as C$1.0309 to the U.S.dollar, or 97 U.S. cents, soon after the central bank ratedecision as market players detected a tone shift in the bank"sstatement.

The central bank acknowledged stronger-than-expectedeconomic growth and inflation, and it also removed a referenceto downside risks to its inflation outlook that had beenpresent in previous statements, all of which hinted at aslightly more hawkish bent. [ID:nN02149877]

"It"s a subtle but important change," said Matthew Strauss,senior currency strategist at RBC Capital Markets. "By nowsaying (risks to inflation outlook is) roughly balanced, theunderlying dovish tone has disappeared and made way for aneutral statement."

"More importantly, the overall backdrop remains quitepositive with the risk appetite continuing globally. Equities,commodities are looking pretty decent today," Strauss said.

Although the central bank continued to uphold itsconditional commitment to keep rates at their current low leveluntil the end of June, it appeared also to prime markets for astronger signal about the timing of eventual rate hikes.

"Right now I think it"s setting the stage to an upgrade toits GDP forecast when we get its next round of officialprojections in April," said Jonathan Basile, an economist atCredit Suisse in New York.

At 12:20 p.m. (1720 GMT), the Canadian dollar was at aC$1.0329 to the U.S. dollar, or 96.81 U.S. cents, up fromC$1.0416 to the U.S. dollar, or 96.06 U.S. cents, at Monday"sclose.

The two-year Canadian government bond CA2YT=RR slipped 5Canadian cents to C$100.25 to yield 1.375 percent, while the10-year bond CA10YT=RR fell 3 Canadian cents to C$102.70 toyield 3.407 percent. (Reporting by Ka Yan Ng; editing by Peter Galloway)

Currencies