Canadian dollar muted as markets await QE3

Thu Sep 13, 2012 8:25am EDT
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By Claire Sibonney

TORONTO (Reuters) - Canada's dollar was little changed against the U.S. dollar on Thursday, pausing after a recent rally as investors waited to see whether the U.S. Federal Reserve announces a new round of money-printing.

Analysts say the market is largely priced for the Fed to launch a third round of quantitative easing, or QE3, on Thursday while signaling that a weak U.S. economy may warrant ultra-low interest rates for at least another three years.

Not everyone believes the Fed will embark on a bond-buying spree, and plenty of doubts remain about the likely efficacy of such a move.

"If we don't get QE ... then we should see a big (U.S. dollar) selloff across the board and that would see (U.S.) dollar/CAD pushing higher," said Elsa Lignos, senior currency strategist at RBC Capital Markets in London.

The Federal Open Market Committee announces its decision at about 12:30 p.m. ET (1630 GMT) at the close of a two-day meeting. Fed Chairman Ben Bernanke will then discuss the Fed's decision during a news conference at 2:15 p.m.

"Of course Bernanke may then come out ... and perhaps signal that QE could be coming at the next FOMC meeting, but in that two-hour period it would be a lot of weakness for the Canadian dollar," added Lignos.

If the Fed does in fact launch a large and open-ended bond-buying program, markets then expect to see the current U.S. dollar weakness momentum being maintained and the Canadian dollar could test its 13-month highs seen earlier this week.

At 8:08 a.m., the currency stood at C$0.9756 versus the U.S. dollar, or $1.0250, a tad firmer than Wednesday's North American session close at C$0.9766 versus the greenback, or $1.0240.   Continued...