C$ slips on Fed disappointment

Wed Jun 20, 2012 7:42pm EDT
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By Claire Sibonney

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.   Continued...

Images of the front and the back of the new Canadian 50 dollar bill, made of polymer, are seen on display before a news conference in Quebec City, March 26, 2012. REUTERS/Mathieu Belanger