CANADA FX DEBT-C$ firms, but weakness seen on horizon

Reuters

By Alastair Sharp

TORONTO, Nov 6 (Reuters) - The Canadian dollar firmed

slightly against the U.S. dollar in subdued trade on Wednesday,

but is seen weakening in coming weeks and months as bond yields

likely slip back towards those of its southern neighbor and main

trading partner.

At 9:42 a.m. (1442 GMT) the Canadian dollar was

trading at C$1.0440 to the greenback, or 95.79 U.S. cents,

compared with C$1.0458, or 95.62 U.S. cents, at Tuesday's North

American close.

"Today there are a couple of Canadian data points that are

perhaps interesting to watch but probably not all that

influential for the Canadian dollar," said Greg Moore, currency

strategist at TD Securities.

Increased plans for housing construction helped edge the

value of Canadian building permits up by 1.7 percent in

September after permits were whipsawed by a gain and loss of

more than 20 percent in July and August.

Separately, the pace of purchasing activity in Canada jumped

in October, with supplier deliveries returning to growth,

according to Ivey Purchasing Managers Index data released on

Wednesday.

In a Reuters poll released on Wednesday, the currency was

seen slipping to C$1.06 a year from now as the combined effect

of tighter future U.S. monetary policy and no imminent rate

hikes in Canada take hold.

While much attention in coming weeks will be on whether the

U.S. Federal Reserve will start to trim back its monetary

stimulus, Moore said the Bank of Canada's recent dropping of a

rate-hike bias would likely cause weakness in the Canadian

currency as short-term bond yield spreads tighten.

"The Canadian yield advantage is on an eroding trend and

that should continue perhaps a little more sharply after the

messaging we heard in the past couple of weeks," he said.

The two-year bond was up 1.5 Canadian cents to

yield 1.123 percent, while the benchmark 10-year bond

rose 8 Canadian cents to yield 2.527 percent.

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