Bond prices were flat to higher, erasing losses, as the
momentum toward risk assets ebbed.

Movements in the equity markets were the currency’s main
driver due to a lack of economic data or developments in the
euro zone debt crisis. Toronto’s main stock index, which had
gained more than 1 percent early in the session, cut gains and
closed only moderately higher. [.TO]

“The market is searching for some direction right now,”
said Shane Enright, executive director, foreign exchange sales,
at CIBC World Markets, noting currency flows were fairly light
to start the week.

The Canadian dollar CAD=D4 closed at C$0.9901 to the U.S.
dollar, or $1.01, down from Friday’s North American finish at
C$0.9886 to the U.S. dollar, or $1.0115. The day’s range was
C$0.9829-C$0.9920.

The two-year bond CA2YT=RR was flat to yield 0.877
percent, while the 10-year bond CA10YT=RR edged up 8 Canadian
cents to yield 2.296 percent.

Investors were in no mood to jump aggressively into the
market due to lingering worries that the euro zone debt crisis
might spread to bigger economies. [MKTS/GLOB]

An annual bankers gathering in Jackson Hole, Wyoming, late
this week is the key event of the week. Investors are waiting
to see whether the U.S. Federal Reserve flags further economic
stimulus, a year after Chairman Ben Bernanke launched a second
round of quantitative easing to revive the economy.

“The market seems to be trying to figure out exactly what
it wants to do next,” said John Curran, senior vice president
at CanadianForex.

“This week is going to be about people figuring out what’s
going to happen at Jackson Hole. So we may see rather subdued
ranges but probably volatile trading within those ranges.”

Jean Boivin, deputy governor at the Bank of Canada, and
Senior Deputy Governor Tiff Macklem, both have speeches this
week ahead of the Jackson Hole event.

Analysts were not expecting their remarks to differ much
from last week’s testimony to a parliamentary committee by Bank
of Canada Governor Mark Carney.

Carney and Finance Minister Jim Flaherty both highlighted
the risks posed by Europe’s stubborn debt crisis and the slow
U.S. recovery from recession, but neither forecast a new
recession. [ID:nN1E77I0L1]

“The markets had a chance to hear from them recently. Any
domestic speeches will be watched closely but right now I think
we’re going to get our direction from broader asset markets for
the most part,” Enright said.

“There’s more macro risk here to be honest.”
(Reporting by Ka Yan Ng; editing by Peter Galloway)

It capped a relatively restrained week for the
resource-linked currency, which saw some of its gains erased by
weakness on equity markets.

“Canada-U.S. has been very much sort of driven by risk-on,
risk-off; it’s one of the most correlated currency pairs with
respect to global equity news,” said Mark Chandler, head of
Canada fixed income and currency strategy at RBC Capital
Markets.

The Canadian dollar CAD=D4 finished at C$0.9886 to the
U.S. dollar, or $1.0115, virtually unchanged from Thursday’s
session close at C$0.9884 to the U.S. dollar, or $1.0117. It
was up 0.2 percent on the week.

In testimony before a parliamentary committee on Friday,
Bank of Canada Governor Mark Carney and Finance Minister Jim
Flaherty both highlighted the risks posed by Europe’s stubborn
debt crisis and the slow U.S. recovery from recession.

But neither forecast a recession in either area, although
Carney admitted that Canada’s economy might contract in the
second quarter. [ID:nN1E77I0KX] [ID:nN1E77I0L1][ID:nN1E77I0QJ]

“There wasn’t anything too bombastic out of Governor Carney
to convince the dollar to move in any sustained manner as a
result of his testimony,” said David Tulk, chief Canada macro
strategist at TD Securities.

The appearance by Carney and Flaherty in Ottawa marked the
key event of the session for domestic markets, as inflation
data for July, released earlier by Statistics Canada, suggested
no inflation pressures, leaving the Bank of Canada some
breathing room to stand pat on rates for now. [ID:nN1E77I02W]
[ID:nSCLJJE70X]

A rate hike remains the most likely eventual course of
action from the Bank of Canada and two primary dealers say it
could come this December, according to a Reuters survey.
[CA/POLL]

All ten of Canada’s 12 primary dealers available to answer
Reuters questions expect the bank to hold its overnight rate at
1 percent until at least December. Two of the dealers were not
immediately available to update their forecasts.

Government bond prices moved lower, giving back a fraction
of their rally of the past three sessions. The two-year bond
CA2YT=RR dipped 4 Canadian cent to yield 0.879 percent, while
the 10-year bond CA10YT=RR fell 3 Canadian cents to yield
2.304 percent. Canadian bond mostly underperformed their U.S.
counterparts.
(Additional reporting by Claire Sibonney; editing by Rob
Wilson)

In testimony before a parliamentary committee on Friday,
Bank of Canada Governor Mark Carney and Finance Minister Jim
Flaherty both highlighted the risks posed by Europe’s stubborn
debt crisis and the slow U.S. recovery from recession.

But neither forecast a recession in either area, although
Carney admitted that Canada’s economy might contract in the
second quarter. [ID:nN1E77I0KX] [ID:nN1E77I0L1]

“There wasn’t anything too bombastic out of Governor Carney
to convince the dollar to move in any sustained manner as a
result of his testimony,” said David Tulk, chief Canada macro
strategist at TD Securities.

At 12:15 p.m. (1615 GMT), the currency was at C$0.9852 to
the U.S. dollar, or $1.0150, up moderately from Thursday’s
session close at C$0.9884 to the U.S. dollar, or $1.0117.

The appearance by Carney and Flaherty in Ottawa marked the
key event of the session for domestic markets, as inflation
data for July, released earlier by Statistics Canada, suggested
no inflation pressures, leaving the Bank of Canada some
breathing room to stand pat on rates for now. [ID:nN1E77I02W]

“Very neutral data. Pretty much in line with where the
market had expected, and also falling back slightly from last
month on some of the numbers, which I think just provides some
flexibility to the Bank of Canada,” said Camilla Sutton, chief
currency strategist at Scotia Capital.

Data showed Canada’s annual inflation rate eased in July to
2.7 percent from 3.1 percent in June, in part because the
introduction of higher sales taxes in three provinces is no
longer included in calculations, Statistics Canada said on
Friday. [ID:nSCLJJE70X]

The closely watched annual core rate, which strips out
prices of some volatile items, rose to 1.6 percent from 1.3
percent in June.

Government bond prices moved lower, giving back a fraction
of rally of the past three sessions. The two-year bond
CA2YT=RR was off 8 Canadian cent to yield 0.900 percent,
while the 10-year bond CA10YT=RR fell 11 Canadian cents to
yield 2.313 percent.
(Additional reporting by Trish Nixon; editing by Rob Wilson)

Canadian Finance Minister Jim Flaherty and Bank of Canada
Governor Mark Carney will be grilled by a parliamentary
committee on the possible fallout for the domestic economy from
global economic turmoil. Flaherty is scheduled to speak at 9
a.m. (1300 GMT), followed an hour later by Carney. For more
details, see [ID:nN1E77F1AL]

Their appearance in Ottawa marks the key event of the
session for Canadian markets, as the data released by
Statistics Canada suggested no inflation pressures, leaving the
Bank of Canada some breathing room to leave rates unchanged for
now. [ID:nN1E77I02W]

“Very neutral data. Pretty much in line with where the
market had expected, and also falling back slightly from last
month on some of the numbers, which I think just provides some
flexibility to the Bank of Canada,” said Camilla Sutton, chief
currency strategist at Scotia Capital.

“Now I think the market is just turning to what Carney will
or won’t say at today’s appearance.”

Data showed Canada’s annual inflation rate eased in July to
2.7 percent from 3.1 percent in June, in part because the
introduction of higher sales taxes in three provinces is no
longer included in calculations, Statistics Canada said on
Friday. [ID:nSCLJJE70X]

Although July marked the 10th straight month that overall
inflation has been above the Bank of Canada’s 2 percent target,
the figure was well below the eight-year high of 3.7 percent
recorded in May. Market analysts had forecast the July rate
would be 2.8 percent.

The closely watched annual core rate, which strips out
prices of some volatile items, rose to 1.6 percent from 1.3
percent in June.

At 7:40 a.m. (1140 GMT), the currency was at C$0.9890 to
the U.S. dollar, or $1.0111, down slightly from Thursday’s
session close at C$0.9884 to the U.S. dollar, or $1.0117.

Government bond prices were flat to lower on Friday
morning, giving back a fraction of rally of the past three
sessions.

The two-year bond CA2YT=RR was off 1 Canadian cent to
yield 0.867 percent, while the 10-year bond CA10YT=RR fell
26 Canadian cents to yield 2.329 percent.
(Reporting by Ka Yan Ng and Trish Nixon; Editing by Theodore
d’Afflisio)

The nervousness, however, sent government of Canada bond
prices surging for a third straight session in safe-haven gains
as investors exited riskier stock markets.

The glum global outlook is one of the key points a
parliamentary committee will examine on Friday when Finance
Minister Jim Flaherty and Bank of Canada Governor Mark Carney
will be grilled on the possible fallout for the domestic
economy. [ID:nN1E77F1AL]

They will also be speaking ahead of key inflation figures
from Canada, which are expected to show the all-items and core
inflation annual rates moving closer to the Bank of Canada’s
target of 2 percent. [ID:nN1E77B0FV] ECONCA

But fluctuations in inflation have taken a back seat to
concerns over global financial and economic turmoil.

The prospect of slowing growth has boosted the market’s
betting that interest rate cuts are in the cards, although
economists believe it is too soon to consider such action.

“It’s definitely not the signal (Carney) wants to convey,”
said Jimmy Jean, economic strategist at Desjardins Capital
Markets.

“The market is expecting rate cuts at this point. I don’t
think he will do anything to open the door at this time. If
things continue to worsen, we might see that probably more of a
year-end, early-2012 story, but not in the next couple of
months.”

Instead of an interest rate cut, Jean expects the next Bank
of Canada rate hike will not come until mid-2013, saying the
Federal Reserve’s pledge to hold U.S. rates near zero will take
Canada’s own rate path “hostage”.

The new view joins an growing chorus of forecasters who say
the Bank of Canada will keep rates steady at low levels for
longer. [ID:nN1E77H0QC] BOCWATCH

The Canadian dollar CAD=D4 ended at C$0.9884 to the U.S.
dollar, or $1.0117, down nine-tenths of a cent from C$0.9797 to
the U.S. dollar, or $1.0207, at Wednesday’s North American
close.

The currency touched its lowest level since Aug. 11,
hitting C$0.9939 to the U.S. dollar, or $1.0061, with the
latest downdraft coming on the heels of data that showed U.S.
factory activity in the U.S. Mid-Atlantic region sagged in
August.

That added to soft U.S. economic news that showed jobless
claims rose in the latest week and July consumer prices rose
faster than expected. [ID:nN1E77H0E8]

Sentiment was already weighed down by the European debt
crisis and persistent unease about the sluggish global
recovery, which was a chief factor that sent European and North
American shares sharply lower. [MKTS/GLOB] [.TO]

“Numbers showing greater-than-expected weakness reinforce
concerns about the sustainability of the recovery,” said Paul
Ferley, deputy chief economist at Royal Bank of Canada.

The price of crude oil dropped steeply on the day, down
more than 6 percent, which also weighed on the commodity-linked
currency. [O/R]

Both TD Securities and CIBC World Markets predict a softer
Canadian dollar as its typical drivers are expected to be less
supportive in the current environment.

TD forecast the Canadian dollar to fall below parity with
the greenback to C$1.04 to reflect the more downbeat mood,
while CIBC forecast a C$0.95-C$1.02 trading range through
2012.

The two-year bond CA2YT=RR jumped 21 Canadian cents to
yield 0.876 percent, while the 10-year bond CA10YT=RR
advanced 73 Canadian cents to yield 2.310 percent.

Canadian government bonds outperformed their U.S.
counterparts in the short-end of the curve, but lagged in
longer-dated issues.
(Reporting by Ka Yan Ng; editing by Rob Wilson)

The nervousness, however, sent government of Canada bond
prices surging for a third straight session in safe-haven gains
as investors exited riskier stock markets.

The currency fell to its lowest level since Aug. 11,
touching C$0.9939 to the U.S. dollar, or $1.0061, with the
latest downdraft coming on the heels of data that showed U.S.
factory activity in the Mid-Atlantic region plummeted in
August.

The Philadelphia Federal Reserve Bank said its business
activity index dropped to the lowest level since March 2009. It
added to earlier soft economic news out of the United States
that showed jobless claims rose in the latest week and consumer
prices rose faster than expected in July. [ID:nN1E77H0E8]

Sentiment was already weighed down by the European debt
crisis and persistent unease about the sluggish global
recovery, which was a chief factor that sent European and North
American shares lower. [MKTS/GLOB]

“The data generally didn’t reverse that,” said Paul Ferley,
deputy chief economist at Royal Bank of Canada. “Numbers
showing greater-than-expected weakness reinforce concerns about
the sustainability of the recovery.”

Cuts in global gross domestic product forecasts from big
banks, as well as weak British retail sales data fanned growth
concerns.

The price of crude oil was also down sharply on the day,
which also weighed on the commodity-linked currency.

At 10:38 a.m. (1438 GMT), the Canadian dollar CAD=D4 was
at C$0.9918 to the U.S. dollar, or $1.0083, down more than a
penny from C$0.9797 to the U.S. dollar, or $1.0207, at
Wednesday’s North American close.

Canada’s two-year bond CA2YT=RR jumped 31 Canadian cents
to yield 0.827 percent, while the 10-year bond CA10YT=RR
advanced C$1.02 to yield 2.278 percent.

Investors were unswayed by Canadian economic data released
on Thursday, which showed a rise in July’s leading indicator, a
predictor of economic trends, while June wholesale trade also
rose. [ID:nN1E77H046] [ID:nN1E77H09D]
(Reporting by Ka Yan Ng; editing by Rob Wilson)

The nervousness, however, sent government of Canada bond
prices surging for a third straight session.

The currency fell to a session low at C$0.9880 to the U.S.
dollar, or $1.0121, after U.S. jobless claims rose in the
latest week and U.S. consumer prices rose faster than expected
in July.

The Canadian dollar was also weighed by persistent unease
about the sluggish global recovery, which was a chief factor
that sent European shares lower. Cuts in global gross domestic
product forecasts from big banks, as well as weak British
retail sales data fanned growth concerns. [MKTS/GLOB]

The price of oil was also down on the day. Oil prices often
influence the direction of Canada’s commodity-linked currency.

“The first round of data was very uninspiring,” said John
Curran, senior vice president at CanadianForex. “Realistically,
the major number there was the unemployment claims. CPI no one
is going to care about until mid-2013.”

At 9:12 a.m. (1412 GMT), the Canadian currency CAD=D4 was
at C$0.9875 to the U.S. dollar, or $1.0127, down from C$0.9797
to the U.S. dollar, or $1.0207, at Wednesday’s North American
close.

Canada’s two-year bond CA2YT=RR jumped 20 Canadian cents
to yield 0.881 percent, while the 10-year bond CA10YT=RR
advanced 65 Canadian cents to yield 2.319 percent.

Curran said there could be “some fireworks” after data at
midmorning, which includes existing home sales for July and the
Philadelphia Fed’s business activity index for August. Both are
due at 10 a.m. (1600 GMT).

Investors were unruffled by Canada’s economic data released
on Thursday, which showed a rise in July’s leading indicator, a
predictor of economic trends, while June wholesale trade also
rose.
[ID:nN1E77H046] [ID:nN1E77H09D]
( Reporting by Ka Yan Ng, Editing by W Simon )

The nervousness, however, helped push up government of
Canada bond prices.

Early in the session, the currency rose as high as C$0.9776
to the U.S. dollar, or $1.0229, its highest level in more than
a week. It then backed down to near its 200-day moving average
around C$0.9810.

From around noon onward, the Canadian dollar held in a
modest 27-point range and was an underperformer among major
currencies.

“The drivers are probably a little bit mixed up, but all in
all we’ve got a little bit stronger oil prices and stronger
equities and a general kind of easing in market fears,” said
Camilla Sutton, chief currency strategist at Scotia Capital.

“But I think the biggest driver by far is broad-based U.S.
dollar weakness.”

The Canadian currency CAD=D4 ended the session at
C$0.9797 to the U.S. dollar, or $1.0207, up from Tuesday’s
North American finish of C$0.9821 to the U.S. dollar, or
$1.0182.

The price of oil was up on the day, but off early highs,
while North American stocks were mostly higher but also off the
day’s highs.

INTEREST RATES TO RISE, NOT FALL

Investors are looking forward to clues about government
spending plans and interest rates this Friday when Finance
Minister Jim Flaherty and Bank of Canada Governor Mark Carney
testify at the House of Commons finance committee, which is
looking into the impact on Canada of foreign economic turmoil.
[ID:nN1E77F1AL] .

Analysts expect the two men to acknowledge the economic
slowdown, but not markedly change their cautious tones.

“I think (Carney) will certainly want to leave the
impression that they are not considering actively easing
(interest rates) at the present time,” said David Watt, senior
currency strategist at RBC Capital Markets.

A spate of soft economic data has reduced the already slim
chance that the Bank of Canada will raise interest rates this
year. Canada’s big banks all forecast now that there will be no
rate hikes until next year. On Wednesday, TD Securities went
further and pushed back its forecast for a Bank of Canada rate
hike in January by six months to July.

But the swaps market still sees the possibility that the
Bank of Canada’s next move, along with many other central
banks, will be an interest rate cut because of the mounting
fears of a global slowdown. [ID:nN1E77B11K] BOCWATCH

Scotia’s Sutton said the rate cut expectations worldwide
would probably start to fade in the short term.

BOND PRICES SPIKE

Safe-haven flows to Canadian bonds were also supported by
some disappointment that France and Germany, at a summit
meeting on Tuesday, had stopped short of increasing the size of
the euro zone’s rescue fund and had rejected for now the idea
of a common euro bond. [ID:nL5E7JG0IH]

Canada’s two-year bond CA2YT=RR rose 8 Canadian cents
to yield 0.955 percent, while the 10-year bond CA10YT=RR
advanced 57 Canadian cents to yield 2.394 percent.

A C$3.5 bln tranche of two-year government of Canada bonds
met with solid demand on Wednesday as safe-haven demand
remained firm as concern mounted over the state of the global
economy. [ID:nN1E77G101]
(Reporting by Ka Yan Ng; editing by Peter Galloway)

Government bonds were flat to higher, reflecting some
disappointment that at a summit meeting on Tuesday France and
Germany had stopped short of increasing the size of the euro
zone’s rescue fund and had rejected for now the idea of a
common euro bond. [ID:nL5E7JG0IH]

The currency rose as high as C$0.9776 to the U.S. dollar,
or $1.0229, before retreating to near its 200-day moving
average around C$0.9810.

The price of oil was up more than 2 percent to above $88 a
barrel on Wednesday after industry data released the previous
day showed U.S. gasoline stocks fell sharply last week.

North American stocks also opened higher, lending some
support to risk assets.

“Certainly the intense focus on financial instability has
faded. So dollar/CAD coming back from its recent highs does
make sense,” said David Watt, senior currency strategist at RBC
Capital Markets. “But again, CAD is a still a cyclical
currency and we’re still having a number of concerns about the
global economic outlook.”

World stocks dipped while top-rated government bonds
rallied on Wednesday as investors grew concerned that French
and German plans for closer fiscal integration may be
insufficient to stop the regional debt crisis from spreading
further. [MKTS/GLOB]

For the first time since March 2010, foreigners reduced
their holdings of Canadian securities in June, selling C$3.5
billion ($3.6 billion) worth after buying C$15.3 billion in
May, Statistics Canada said on Wednesday. [ID:nN1E77G03R]

Investors had been piling money into Canada, apparently
eyeing its sound economy, banks, fiscal outlook and currency.
Even with June’s reversal, the first half of the year showed
C$41.2 billion of foreign investment in Canadian securities.

At 9:35 a.m. (1435 GMT), the Canadian currency CAD=D4 was
at C$0.9792 to the U.S. dollar, or $1.0212, up from Tuesday’s
North American finish at C$0.9821 to the U.S. dollar, or
$1.0182.

Canada’s two-year bond CA2YT=RR was unchanged to yield
0.998 percent, while the 10-year bond CA10YT=RR advanced 21
Canadian cents to yield 2.434 percent.

A C$3.5 bln tranche of two-year government of Canada Canada
bonds will be auctioned at noon.
(Reporting by Ka Yan Ng; editing by Peter Galloway)

The pullback came a day after the currency jumped more than
a penny alongside a solid rally in equity markets.

But world stocks were pressured from the get-go on Tuesday
on data that showed stagnant growth in Europe’s powerhouse,
Germany, which was followed by figures showing a plunge in
Canadian manufacturing sales in June.

“It’s a consolidation of sorts this afternoon as equities
are lower but are not establishing any specific new ground,”
said Jack Spitz, managing director of foreign exchange at
National Bank Financial.

“The CAD is still a sideways trade until there’s a breakout
one way or another in equities.”

After a meeting on Tuesday, German Chancellor Angela Merkel
and French President Nicolas Sarkozy detailed proposals for
closer euro zone integration, but that did not include boosting
the size of the euro zone’s rescue fund or beginning sales of
euro bonds. [ID:nB4E7HT04B]

The meeting did not live up to expectations that it might
result in a proposal to solve Europe’s debt crisis, and that
sent stocks, crude oil, and other assets lower. But government
bond prices perked up.

The Canadian currency CAD=D4 ended at C$0.9821 to the
U.S. dollar, or $1.0182, down from Monday’s North American
finish of C$0.9799 to the U.S. dollar, or $1.0205.

Canada’s two-year bond CA2YT=RR edged up 3 Canadian
cents to yield 0.994 percent, while the 10-year bond
CA10YT=RR advanced 37 Canadian cents to yield 2.461 percent.

Canadian manufacturing sales for June plunged by a much
greater than expected 1.5 percent from May, Statistics Canada
data showed on Tuesday, confirming that the economy stalled in
the second quarter. Analysts had expected a milder 0.4 percent
decline. [ID:nN1E77F0XM]

Weak second-quarter data has been a factor in lowering
expectations of Canadian interest rate hikes later this year.

“The weaker data will reinforce expectations for the Bank
of Canada to remain on hold for the next couple of quarters,”
wrote Avery Shenfeld, chief economist at CIBC World Markets, in
a commentary.

Canadian policymakers could provide important clues about
spending plans and interest rates on Friday when a rare
midsummer parliamentary committee meeting examines market
instability and foreign debt crises. [ID:nN1E77F1AL]

Finance Minister Jim Flaherty and Bank of Canada Governor
Mark Carney will testify at the House of Commons finance
committee, which is looking into the impact on Canada of
foreign economic turmoil.

Canada’s big banks now forecast that there will be no rate
hikes until next year. [ID:nN1E77B11K]
(Reporting by Ka Yan Ng; editing by Peter Galloway)