CANADA FX DEBT-C$ rallies on hopes for Fed meeting

Tue Jun 19, 2012 4:35pm EDT
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* C$ at C$1.0182 vs the US$, or 98.21 U.S. cents
    * C$ touches highest point since May 22
    * All eyes on Federal Reserve
    * Bond prices mostly lower

    By Allison Martell
    TORONTO, June 19 (Reuters) - The Canadian dollar
strengthened o n T uesday as traders bet major central banks,
especially the U.S. Federal Reserve, would intervene to
stimulate the global economy and relieve the pressure of the
euro zone debt crisis.
    Canada's currency rose as high as C$1.0166 to the U.S.
dollar, its strongest since May 22, as Canada's main stock index
rallied to its highest point since May 10 and U.S. equities
    "In general, I think it's the expectation of continued
stimulus by the Fed. Clearly they see that there's some
headwinds in the global economy," said Blake Jespersen, managing
director of foreign exchange sales at BMO Capital Markets.
    Greg Moore, currency strategist at TD Securities, said the
Canadian dollar and its G10 peers were lifted in anticipation of
Wednesday's policy announcement from the Fed's Open Market
    The euro rose against the dollar and stock markets gained as
investors bet the Fed will unveil more stimulus to support a
flagging recovery.  
    Analysts expect the Fed to extend long-term bond-buying
through "Operation Twist" by a few months from the current
deadline in June. Moore said he was not forecasting a new round
of quantitative easing, but the market could be expecting one.
    "Just an extension of Operation Twist might actually see a
little bit of a retraction in risk assets tomorrow," he said.
"If the options are Operation Twist or full on QE, then I think
anything less than full-on QE might actually disappoint the
    The Canadian dollar closed at C$1.0182 versus the U.S.
dollar, or 98.21 U.S. cents, compared with Monday's close at
C$1.0241, or 97.65 U.S. cents. 
    A European Union official said international lenders are
open to renegotiate the terms of Greece's bailout deal because
circumstances have changed, further boosting the euro against
the greenback. 
    A surprise fall in British inflation to its lowest point in
two and a half years also raised hopes that the Bank of England
will take steps to support the UK's economy. ID:nL5E8HJ554]
    Canadian bond prices were mostly lower across the curve.
Canada's two-year bond fell 13 Canadian cents to
yield 1.042 percent, while the benchmark 10-year bond
 fell 44 Canadian cents to yield 1.761 percent.