September 18, 2014 / 2:03 PM / 3 years ago

C$ firms on U.S. data, rethink of Fed stance

3 Min Read

A Canadian one dollar coin, also know as a loonie, is shown in Montreal, April 28, 2006.Shaun Best

TORONTO (Reuters) - The Canadian dollar firmed against the greenback on Thursday as investors reassessed the previous day's policy statement from the U.S. Federal Reserve, while markets globally were bracing for the results of Scotland's independence referendum.

The loonie was also supported by weak housing data south of the border, as well as data at home that showed foreign investors resumed buying Canadian securities in July.

The currency recovered much of the ground lost in a selloff the previous session that was sparked by a Fed indication that it could move at a faster pace than expected once it starts raising interest rates, even as it repeated that rates will stay low for a "considerable time".

Currency markets had focused on the Fed's rate projections on Wednesday, but they were giving that a rethink on Thursday.

"I think the rate and currency markets essentially looked too much into the dot charts and the increase in hawkishness for interest rate projections, whereas when you look at the statement, (Fed Chair Janet) Yellen and the voting members were still dovish," said Scott Smith, senior market analyst at Cambridge Mercantile Group in Calgary.

"To some extent, we could see a little pullback in U.S. dollar-Canadian dollar just on the fact that the run-up yesterday was a little overdone when you weigh everything."

The Canadian dollar CAD=D4 was at C$1.0964 to the greenback, or 91.21 U.S. cents, stronger than Wednesday's close of C$1.1004, or 90.88 U.S. cents.

The British pound firmed against the loonie GBPCAD=R on investor hopes that Scotland would not choose to abandon its union with England. The result of the vote is not expected until early on Friday.

"One thing that could hem in the pound a bit, so that it doesn't rally too far, is if there is a small 'no' majority, it could likely be a situation like what we had in Canada with Quebec, where an independence referendum is always in the back of a competing party's mind," Smith said.

Canadian government bond prices were lower across the maturity curve, with the two-year CA2YT=RR off 2 Canadian cents to yield 1.177 percent and the benchmark 10-year CA10YT=RR down 13 Canadian cents to yield 2.284 percent.

Editing by Peter Galloway

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