CANADA FX DEBT-C$ muted as markets await QE3

Thu Sep 13, 2012 8:15am EDT
 
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* C$ up slightly at C$0.9756 vs, or $1.0250
    * Bond prices climb across the curve

    By Claire Sibonney
    TORONTO, Sept 13 (Reuters) - Canada's dollar was little
changed against the U.S. dollar on Thursday, pausing after a
recent rally as investors waited to see whether the U.S. Federal
Reserve announces a new round of money-printing.
    Analysts say the market is largely priced for the Fed to
launch a third round of quantitative easing, or QE3,  on
Thursday while signaling that a weak U.S. economy may warrant
ultra-low interest rates for at least another three years.
 
    Not everyone believes the Fed will embark on a bond-buying
spree, and plenty of doubts remain about the likely efficacy of
such a move.
    "If we don't get QE ... then we should see a big (U.S.
dollar) selloff across the board and that would see (U.S.)
dollar/CAD pushing higher," said Elsa Lignos, senior currency
strategist at RBC Capital Markets in London.
    The Federal Open Market Committee announces its decision at
about 12:30 p.m. ET (1630 GMT) at the close of a two-day
meeting. Fed Chairman Ben Bernanke will then discuss the Fed's
decision during a news conference at 2:15 p.m.
    "Of course Bernanke may then come out ... and perhaps signal
that QE could be coming at the next FOMC meeting, but in that
two-hour period it would be a lot of weakness for the Canadian
dollar," added Lignos.
    If the Fed does in fact launch a large and open-ended
bond-buying program, markets then expect to see the current U.S.
dollar weakness momentum being maintained and the Canadian
dollar could test its 13-month highs seen earlier this week.
    At 8:08 a.m., the currency stood at C$0.9756 versus
the U.S. dollar, or $1.0250, a tad firmer than Wednesday's North
American session close at C$0.9766 versus the greenback, or
$1.0240.
    Lignos noted Canadian-dollar resistance around C$0.9728 and
C$0.9634, and support near C$0.9800, C$0.9886, followed by
parity.
    Canada's dollar hit its strongest level since August 2011 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.
    Ahead of the Fed, investors will also be watching U.S.
weekly jobless claims and the Canadian new house price index for
July, both due at 8:30 a.m.
    Canadian government bond prices advanced across the curve,
tracking U.S. Treasuries higher. 
    The two-year bond rose 3 Canadian cents to yield
1.170 percent and the benchmark 10-year bond gained
26 Canadian cents, yielding 1.875 percent.