CANADA FX DEBT-C$ touches 3-week high after Bernanke comments

Thu Jul 11, 2013 5:01pm EDT
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* C$ at C$1.0385 vs US$, or 96.29 U.S. cents
    * Markets react to more dovish than expected Bernanke
    * Global markets rally on U.S. central bank stance
    * Bond prices rise across curve

    By Solarina Ho
    TORONTO, July 11 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Thursday, up by as
much as two cents at one point, as the greenback tumbled after
U.S. Federal Reserve Chairman Ben Bernanke said on Wednesday the
Fed was not ready to abandon its stimulus measures.
    Shares and bonds rallied globally, while the S&P 500 
and Dow industrials closed at record highs. But the U.S.
dollar fell sharply as markets reassessed when the U.S. central
bank would wind down its asset purchase program. 
    "Quite a few fireworks yesterday. Despite the market action
that was quite dramatic, I think the bigger picture hasn't
really changed," said Greg Moore, FX Strategist at TD
Securities. "Bernanke's comments ... were quite broad and still
consistent with the message we already knew."
    Bernanke said in a speech after markets closed on Wednesday
that "highly accommodative policy is needed for the foreseeable
future," adding the U.S. unemployment rate may be overstating
the health of the labor market.
    In the minutes of their late-June meeting released earlier
on Wednesday, about half of the Fed's policymakers felt the
bond-buying measures should be brought to a halt by year-end,
but that many of them wanted reassurance that the U.S. jobs
recovery was on solid ground before any policy retreat.
    "Bernanke didn't give us any new information," said Benjamin
Reitzes, senior economist and foreign exchange strategist at BMO
Capital Markets. "He's doing his best to tell markets tapering
QE (quantitative easing), and ending QE, is not the same thing
as raising rates. I think that's something the markets really
haven't been able to grasp entirely." 
    The Canadian dollar finished the North American
session at C$1.0385 versus its U.S. counterpart, or 96.29 U.S.
cents. That was sharply higher than the Bank of Canada's posted
close on Wednesday, which came before Bernanke's speech, at
C$1.0518, or 95.08 U.S. cents.
    The Canadian dollar, which outperformed most major
currencies on Thursday, touched as high as C$1.0326, its
strongest level in three weeks.
    "This price action is a little bit overdone in my mind,"
said Moore, noting that TD Securities has a target of C$1.06 for
USD/CAD in the second and third quarter.
    "We hit our target on Friday with the payrolls number. With
this pullback, we actually see this as a buying opportunity for
    A Reuters poll of economists released on Wednesday showed
the Bank of Canada is expected to keep its bias toward
tightening on July 17, its first rate-decision date under new
Governor Stephen Poloz, but slow growth and low inflation mean
that an actual rate hike will not happen untill the fourth
quarter of 2014. 
    Prices for Canadian government debt were higher across the
maturity curve, with the two-year bond rising 3.5
Canadian cents to yield 1.133 percent. The benchmark 10-year
bond climbed 45 Canadian cents, yielding 2.439