CANADA FX DEBT-C$ eases from 1-yr high ahead of Fed decision

Wed Sep 12, 2012 4:30pm EDT
 
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* C$ ends at C$0.9766 vs US$, or $1.0240
    * Markets expect Fed to announce third round of stimulus
    * German court OK's ratification of bailout fund
    * Bond prices ease across curve

    By Solarina Ho
    TORONTO, Sept 12 (Reuters) - The Canadian dollar slid
against the U.S. currency on Wednesday after a four-day rally
that took it to its strongest level in more than a year, 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 - know as quantitative easing - in
an effort to revitalize a sluggish economy that has dragged on
the country's employment growth.
    "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. (dollar) 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.
    The currency finished its North American session at
C$0.9766 versus the greenback, or $1.0240, weaker than Tuesday's
close 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 Canadian cents to yield
1.191 percent and the benchmark 10-year bond falling
44 Canadian cents, yielding 1.902 percent.