CANADA FX DEBT-C$ eases from highs ahead of Fed announcement

Wed Sep 12, 2012 3:35pm EDT
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* C$ at C$0.9767 vs US$, or $1.0239
    * Markets expect Fed to announce third round of stimulus
    * German Constitutional Court OK's ratification of bailout
    * Bond prices ease across curve

    By Solarina Ho
    TORONTO, Sept 12 (Reuters) - The Canadian dollar slid
against the U.S. dollar on Wednesday after a four-day rally,
with traders looking ahead to the Federal Reserve's policy
announcement on Thursday.
    Markets are anticipating the U.S. central bank to announce a
third round of bond purchases in an effort to revitalize a
sluggish economy that has dragged on the country's employment
    "Nothing's going on today -- a little bit of profit-taking
across the markets. I think the markets as a whole still expect
QE3 from the Fed tomorrow and that's really how they're 
positioned right now," said Shane Enright, executive director,
foreign exchange sales at CIBC World Markets.
    "If we get it, I imagine there will still be some
volatility, probably broader consolidation. If we don't see it,
there should be U.S. strength across the board."
    Stimulus action by the Fed is expected to weigh on the U.S.
dollar against currencies such as the Canadian dollar.
    At 3:19 p.m. (1919 GMT), the currency was at      
C$0.9767 versus the greenback, or $1.0239, weaker than Tuesday's
finish at C$0.9732 to the U.S. dollar, or $1.0275.
    The Canadian unit was underperforming against major
currencies, including the euro, which touched a fourth-month
high against the U.S. dollar after the German Constitutional
Court said the country could ratify the euro zone's new bailout
fund and budget pact. 
    Canada's dollar hit a 13-month high on Tuesday, propelled by
a confluence of factors, including Fed stimulus expectations, a
hawkish Bank of Canada stance, strong domestic job figures and a
bond buyback plan announced by the European Central Bank.
    "Canada is stretched a little here. We're really the only
currency trading at its 13-month highs, and so I think the
others are playing catch-up maybe, and Canada is just waiting
for the next catalyst," said Camilla Sutton, chief currency
strategist at Scotiabank.
    "We're totally happy to ignore yesterday's absolutely
miserable trade balance data and now waiting for FOMC tomorrow,"
she added.
    Dismal data from the government on Tuesday showed that the
country's trade deficit hit a record high in July, but it was
largely ignored.
    Canadian government bond prices retreated across the curve,
with the two-year bond down 3.5 Canadian cents to
yield 1.194 percent and the benchmark 10-year bond 
falling 43 Canadian cents, yielding 1.901 percent.