C$ hits 13-month high after aggressive Fed move

Thu Sep 13, 2012 5:14pm EDT
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By Solarina Ho

TORONTO (Reuters) - The Canadian dollar strengthened to its highest level in more than a year against its U.S. counterpart on Thursday after the U.S. Federal Reserve announced an aggressive third round of stimulus measures to try to jumpstart the economy.

The currency rose as high as C$0.9665 versus the U.S. dollar, or $1.0347, its strongest level since August 4, 2011, when it hit C$0.9603, or $1.0413.

The rally came after the U.S. central bank said it will buy $40 billion of mortgage debt each month and continue to purchase assets until the outlook for jobs improves substantially. The announcement also sent equity markets higher.

"The Kool-Aid party is raging," said Darcy Browne, managing director of Capital Markets Trading at CIBC.

"Trying to time the hangover is the hard part. But we got our answer as to whether or not the market had fully priced it in (the Fed's move) or not, and clearly it hadn't."

In a major shift in U.S. monetary policy, the Fed tied its unconventional bond buying directly to economic conditions as it tries to stimulate the U.S. labor market.

In addition, it said it would likely hold interest rates at current lows until at least mid-2015, a year later than its previous target.

"The Fed is making a clear commitment they're going to continue to supply liquidity to the system until we see better numbers emerge in U.S. labor markets," said Paul Ferley, assistant chief economist at Royal Bank of Canada.   Continued...