CANADA FX DEBT-C$ drifts lower; investors await data later in week

Reuters

* Canadian dollar at C$1.1100 or 90.09 U.S. cents * Bond prices mostly higher across the maturity curve By Leah Schnurr TORONTO, Feb 26 (Reuters) - The Canadian dollar weakened modestly against the greenback on Wednesday as the lack of domestic economic data until later in the week left the currency with few strong trading catalysts.

Markets also had a cautious tone as investors watched developments in China's currency. Dealers suspect the country's central bank has engineered the recent decline in the yuan to inject more two-way volatility into the market.

"It has people retrenching back to their traditional safe havens," said Don Mikolich, executive director of foreign exchange sales at CIBC World Markets in Toronto.

"The Canadian dollar is not traditionally the biggest recipient of that safe-haven flow. It causes people to be a little more cautious in terms of where they're putting their positions." The Canadian dollar was at C$1.1100 to the greenback, or 90.09 U.S. cents, weaker than Tuesday's close of C$1.1086, or 90.20 U.S. cents.

After pushing higher in the first weeks of February, the Canadian dollar has given back much of that advance in recent sessions. While the currency has stabilized after a sharp drop in January, it is still not far from a 4-1/2-year low and most analysts expect the loonie could see more downside.

"We've been trying to find some new direction here, it's been really trapped in that range we've been seeing for a few sessions now," said Mikolich.

"With the real lack of any Canadian data out and Stateside (data) being at or slightly below market expectations, that has left the Canadian dollar trading in that C$1.10 to C$1.11 range." The Canadian economic calendar has been light this week but the pace will pick up toward the end of the week with data on the current account due Thursday and fourth-quarter gross domestic product on Friday.

Economic growth is forecast to have slowed to an annualized 2.5 percent in the last months of 2013, but analysts will be looking to see how much of an impact harsh winter weather had on the economy.

Canadian government bond prices were mostly higher across the maturity curve, with the two-year up 1.2 Canadian cents to yield 1.017 percent and the benchmark 10-year up 5 Canadian cents to yield 2.481 percent.

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