Canadian dollar firms to two-month high after Fed stimulus plan

Thu Dec 13, 2012 10:06am EST
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By Solarina Ho

TORONTO (Reuters) - The Canadian dollar touched its strongest level against its U.S. counterpart in two months on Thursday, extending Wednesday's gains following the U.S. Federal Reserve's plan to ease monetary policy further.

The Fed mostly met market expectations by saying it would keep buying $45 billion of government bonds each month after its "Operation Twist" program expires, in addition to buying $40 billion a month in agency mortgage-backed securities.

"What we're seeing is the continued follow-through to what we saw yesterday. What the Fed's doing is clearly not U.S. dollar-friendly and I think that's translating by default into Canadian dollar strength," said Michael Gregory, senior economist at BMO Capital Markets.

At 9:13 a.m. (1413 GMT), the Canadian dollar was trading at C$0.9829 versus the U.S. dollar, or $1.0174, stronger than Wednesday's North American session finish of C$0.9847, or $1.0155.

Earlier in the session, the currency touched its strongest level since October 18, trading at C$0.9825, or $1.0178.

"Right now, I think you have to believe the Canadian dollar will trend a little bit stronger as the market continues to digest what transpired yesterday, but I think eventually it will run out of steam," said Gregory.

Canada's dollar mostly outperformed other major currencies, including the Japanese yen, where it touched its strongest level against the yen since July 8, 2011.

A Royal Bank of Canada research note expected the currency to trade between C$0.9815 and C$0.9855 on Thursday.   Continued...

A man holds the new Canadian 100 dollar bill made of polymer in Toronto November 14, 2011. REUTERS/Mark Blinch