CANADA FX DEBT-C$ holds steady as central bank policies mulled

Wed Sep 19, 2012 4:41pm EDT
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* C$ at C$0.9745 vs US$, or $1.0262
    * BoC's hawkish stance helping C$ attract int'l flows
    * Bonds rise across curve

    By Solarina Ho
    TORONTO, Sept 19 (Reuters) - Canada's dollar was a notch
higher against its U.S. counterpart on Wednesday, trading within
a narrow range and bucking a fall in oil prices, as the market
contemplated the implications of easing monetary policies among
central banks.
    The Bank of Japan became the latest major central bank to
ease its monetary policy, increasing asset purchases by more
than double what some had expected. Overnight, the yen weakened
to a four-month low to the Canadian dollar before recovering.
    Japan's move followed similar steps from the Federal Reserve
and the European Central Bank this month.
    Meanwhile, the euro erased gains as investors waited to see
whether Spain would apply for aid and trigger the European
Central Bank's bond-buying program. 
    "The market is just digesting all that information and
trying to understand what it means. In principle, they're great
initiatives," said Gareth Sylvester, director at Klarity FX.
    He said the stimulus measures have helped the financial
markets, but added, "is it now really going to have the desired
effect on the real economy? ... The market is in a bit of a
holding pattern after last week's volatility and reaction to the
Fed and the ECB." 
    The Canadian dollar closed Wednesday's North
American session at C$0.9745 versus the U.S. dollar, or $1.0262,
essentially unchanged from Tuesday's finish at C$0.9746, or
    "My sense is Canada should weaken off a little bit from
these levels, but I am surprised by the amount of Canadian
dollar buyers we are seeing every time we get above C$0.9750,"
said Firas Askari, head of foreign exchange trading at BMO
Capital Markets.
    Askari said fundamentally, the currency should be trading
closer to the C$0.98 and C$0.9850 range. But with Canada being
the only member of the Group of Seven wealthy nations that has a
central bank with a tightening bias, he said the currency is
attracting international capital flows.
    If the currency can break through the C$0.9765 to C$0.9780
range, analysts believe the Canadian dollar could test the
C$0.9890 to C$0.9900 range.
    Strategists say there is little to sway the markets this
week, however, with Canadian inflation data this Friday the
first piece of major economic news since the Fed announced its
latest monetary policy. 
    Canadian government bond prices rose across the curve. The
two-year bond climbed 2.5 Canadian cents to yield
1.167 percent, while the benchmark 10-year bond 
gained 23 Canadian cents, yielding 1.890 percent.