C$ hits weakest since December after Fed decision

Wed Sep 21, 2011 4:53pm EDT
 
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By Andrea Hopkins

TORONTO (Reuters) - The Canadian dollar sank past parity with its U.S. counterpart to touch its weakest level since December on Wednesday after the Federal Reserve ramped up efforts to aid the beleaguered U.S. economy.

The Fed embraced further monetary easing by extending the average maturity of its security holdings, announcing it intends to buy $400 billion in 6- to 30-year Treasuries by the end of June 2012.

The move is designed to put more downward pressure on long-term interest rates and help the battered U.S. housing sector. But investors focused on the Fed's warning that "there are significant downside risks to the economic outlook."

"The U.S. dollar is a buy on the news, from a safe-haven perspective. Ironically speaking, when the Fed sees 'significant downside risk' to its economic outlook and chooses to deliver Operation Twist," said Jack Spitz, managing director of foreign exchange at National Bank Financial.

"Risk currencies are all off, even more than they were before the Fed announcement."

The Canadian dollar ended the North American session at C$1.0059 to the U.S. dollar, or 99.41 U.S. cents. It hit low of C$1.0083 to the U.S. dollar, or 99.18 U.S. cents. That was the weakest reading for the Canadian currency since December 2010 and well off Tuesday's North American close of C$0.9936 to the U.S. dollar, or $1.0064.

Financial markets registered a big jump in risk aversion after the Fed announcement, as U.S. stocks slid and benchmark Treasury yields hit a more than 60-year low.

The U.S. dollar rose broadly, reversing losses against the euro. <MKTS/GLOB>   Continued...