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Canadian dollar strengthens 0.5% against the greenback
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Loonie trades in a range of 1.3653 to 1.3747
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Canadian bond yields edge higher across curve
By Fergal Smith TORONTO, March 20 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Monday as investors weighed the possibility that the Federal Reserve could leave interest rates on hold this week in the face of banking sector stress.
Traders have raised bets the U.S. central bank will hit the pause button to ensure financial stability when it releases its latest policy decision on Wednesday, a move that has been helping to narrow the gap between Canadian and U.S. bond yields. "While U.S. yields retain a clear premium over Canadian bond yields still, a broader or more sustained pause in the global central bank tightening cycle, catching up with the BoC (Bank of Canada), could be more CAD-supportive if Canada remains aloof to global banking concerns," Shaun Osborne, chief currency strategist at Scotiabank, said in a note. The Canadian dollar was trading 0.5% higher at 1.3655 to the greenback, or 73.23 U.S. cents, after moving in a range of 1.3653 to 1.3747.
The Bank of Canada has already moved to the sidelines. It left its policy rate at 4.50% in a policy decision earlier this month, saying it may not need to raise interest rates further if the economy cools as it expects. Money markets see a one-in-three chance that the central bank would cut rates at its next policy decision on April 12. Canadian consumer price data for February, due on Tuesday, could offer clues on the central bank's policy outlook.
Canadian government bond yields edged higher across the curve, with the 2-year up about half a basis point at 3.558%. It traded 5.8 basis points further below its U.S. equivalent to a gap of 35.1 basis points. Still, the gap has narrowed from 76 basis points earlier this month.
Canada is due to auction C$3.5 billion ($2.6 billion) of 5-year bonds, with the bidding deadline set for 12 p.m. EDT (1600 GMT). (Reporting by Fergal Smith; Editing by Paul Simao)
