C$ touches 13-month high on Fed stimulus hopes

Tue Sep 11, 2012 4:36pm EDT
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By Solarina Ho

TORONTO (Reuters) - The Canadian dollar spiked to 13-month highs against its U.S. counterpart on Tuesday, as the market priced in expectations the U.S. Federal Reserve would pump additional money into its lackluster economy this week.

The currency did see a modest dip following government data that showed Canada had its biggest trade deficit on record in July with exports and imports falling in an unexpectedly dismal performance.

In the United States, disappointing employment data last Friday heightened the probability the U.S. central bank will launch a third round of stimulus, a move that would put pressure on the greenback against currencies like Canada's. The Fed kicks off a two-day policy meeting on Wednesday.

"The markets may be priced a little bit rich relative to what we might get. We seemed to have priced in an awful lot of Fed (quantitative easing)," said Shaun Osborne, chief currency strategist at TD Securities.

"I do hope we get something, because it'd be quite a messy reaction if it's an 'on hold' kind of message from the Fed ... I think there's potentially a bit of a split here between what the markets might get and what the markets are priced for."

The currency finished at C$0.9732 to the U.S. dollar, or $1.0275 versus Monday's North American session close at C$0.9775, or $1.0230.


Earlier in the session it hit C$0.9713, or $1.0295, its strongest level since August 4, 2011. The Canadian dollar has rallied about 5 percent this year, making it one of the best performing major currencies.   Continued...