TORONTO: The Canadian dollar weakened against the US dollar on Monday as a relief rally spurred by Chinese growth faded and investors geared up for a possible change in tone from the Bank of Canada, which may also downgrade Canada's economic growth outlook.
The Bank of Canada is due to announce its first interest rate decision under new Governor Stephen Poloz and also release its quarterly Monetary Policy Report (MPR) on Wednesday, followed by a news conference with the new governor.
"The market is a little nervous that he is going to be a little more dovish than (predecessor Mark) Carney was," said David Bradley, director of foreign exchange trading at Scotiabank.
The Canadian dollar ended the session trading at C$1.0415 versus the US dollar, or 96.02 US cents, weaker than Friday's North American close at C$1.0396, or 96.19 US cents.
China's economic growth cooled to 7.5 percent in the second quarter from a year ago, but the number was better than feared, while other figures showed a healthy rise in retail sales and a minor undershoot of forecasts in industrial output.
Comments by Beijing last week had led markets to think the numbers might have been weaker, so the outcome brought relief. Commodities and commodity-linked currencies like the Canadian dollar initially drove higher, but like stocks saw some profit-taking following a strong showing last week.
While the Canadian dollar remains stronger than the depths plumbed last week, one trader said he expects the currency to soften again this week as the Bank of Canada leaves rates unchanged but tamps down 2014 growth forecasts.
"This generalized US dollar bid - and the fact that the relief rally after the Chinese GDP data has also proved relatively temporary for the commodity currencies - has encouraged a reasonable bid tone to dollar-CAD at the start of this week," said Jeremy Stretch, head of foreign exchange strategy at CIBC World Markets.
"We're very mindful the MPR will mostly likely downgrade growth for next year in Canada, which I think is consistent with the modest topside potential and probably a move back towards C$1.05 and perhaps as high as C$1.06 towards the end of the week."
The Bank of Canada is expected to stick to its tightening bias, but slow growth and low inflation means a rate increase is not seen until the fourth quarter of 2014, a Reuters poll showed.
All 38 economists polled by Reuters expect the central bank to leave its benchmark rate unchanged at 1 percent. And the majority of respondents said the Bank of Canada will stand pat until late next year at the earliest.
Prices for Canadian government debt were higher, with the two-year bond adding 1 Canadian cent to yield 1.132 percent. The benchmark 10-year bond gained 17 Canadian cents, yielding 2.414 percent.
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