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TORONTO (Reuters) - The Canadian dollar ended lower against its U.S. counterpart on Wednesday following a volatile reaction to the U.S. Federal Reserve after the central bank voted to extend a program to stimulate the economy but offered no clues on further easing.
The Fed expanded its "Operation Twist" by $267 billion, meaning it will sell short-term securities and buy long-term debt in an effort to keep long-term borrowing costs down. The program, which was due to expire this month, will now run through the end of the year.
Still, many market players were let down that the Fed did not launch a third round of outright bond purchases, or quantitative easing, which would expand the Fed's holdings of assets.
Shortly after the Fed's announcement, the Canadian dollar weakened as far as C$1.0232 versus the greenback, or 97.72 U.S. cents, from around C$1.0203, or 98.01 U.S. cents heading into the Fed's statement.
"I think (investors) were hoping for more QE3, which would have been positive for the equity market I think, so it would have been positive for the euro, positive for the Canadian dollar and just U.S.-dollar negative in general," said David Bradley, director of foreign exchange trading at Scotiabank.
"The market was a little disappointed that didn't happen."
The announcement met with a mixed reaction in financial markets as prices for stocks, bonds, commodities currencies see-sawed. <MKTS/GLOB>
"There's volatility around any Fed decision and today's is no different ... equity markets were clearly too bullish and expectations had been raised too much and now we're seeing negativity, but it could be short-lived," said Jack Spitz, managing director of foreign exchange at National Bank Financial.
"(The Canadian dollar) is following what it normally follows, which is the tenor of risk and the move lower in equities has created a better bid for the (U.S.) dollar and by extension a better bid for dollar/Canada as well."
Earlier in the session, the currency hit a four-week high against the greenback in anticipation of such a move by the Fed. But it unwound those gains heading into the announcement.
The Canadian dollar ended the North American session at C$1.0192 versus the U.S. dollar, or 98.12 U.S. cents, off slightly from Tuesday's finish at C$1.0182, or 98.21 U.S. cents, against the U.S. dollar.
Scotiabank's Bradley said he expected the Canadian dollar to trade between C$1.0150-C$1.0250 near term.
Canadian bond prices extended losses across the curve, except for the very long end of the curve, mimicking U.S. Treasuries.
Canada's two-year bond fell 10 Canadian cents to yield 1.092 percent, while the benchmark 10-year bond dropped 14 Canadian cents to yield 1.774 percent. The 30-year bond rose 22 Canadian cents to yield 2.354 percent.
Reporting by Claire Sibonney; Editing by Dan Grebler