CANADA FX DEBT-C$ weakens to 1-1/2-month low, Fed in focus

Tue Oct 29, 2013 4:38pm EDT
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* C$ at C$1.0470 vs US$, or 95.51 U.S. cents
    * Poloz says policy shift "not very significant"
    * Market sets up for Fed statement on Wednesday
    * Canadian bond prices higher across the curve

    By Leah Schnurr
    TORONTO, Oct 29 (Reuters) - The Canadian dollar weakened
against the greenback on Tuesday, extending its recent rout to
hit a fresh 1-1/2-month low, but investors were wary of taking
big bets with the U.S. Federal Reserve's two-day policy meeting
    Markets also digested comments from the head of the Bank of
Canada, who said the central bank was not making a significant
policy shift when it dropped any mention of eventual rate
increases from its latest policy statement last week.
    Rather, the Bank of Canada was reacting to low inflation and
a weak economy, bank Governor Stephen Poloz told a parliamentary
    "He's firmly establishing his neutral position, which is
warranted given where Canada finds itself from an economic
perspective and the uncertainty globally," said Gareth
Sylvester, director at Klarity FX in San Francisco.
    The bank's perceived shift in policy took the Canadian
dollar sharply lower last week as analysts pushed out their
expectations for how long interest rates will stay low. Analysts
said the bank has moved to a more neutral stance from its
previous tightening bias. [CA/POLL
    The Canadian dollar ended the North American
session at C$1.0470 versus the greenback, or 95.51 U.S. cents,
weaker than Monday's close of C$1.0445, or 95.74 U.S. cents.
    The loonie's session low was C$1.0472, its lowest level
since early September.
    The Fed will release a statement on Wednesday at the end of
its meeting, with the market expecting the U.S. central bank to
stand pat with its economic stimulus efforts. 
    The Fed surprised markets in September with its decision to
continue its bond-buying program at a $85 billion a month pace,
rather than trimming the amount. The Canadian dollar touched a
three-month high following that announcement, but has weakened
    "Obviously their communication style has come under some
scrutiny since the decision in September to push off tapering,
so we'll have an opportunity in terms of the statement to get a
little more clarity in terms of what the Fed is really looking
at," said Camilla Sutton, chief currency strategist at
Scotiabank in Toronto.
    Canadian government bond prices were higher across the
maturity curve. The two-year bond rose half a
Canadian cent to yield 1.091 percent, and the benchmark 10-year
bond added 21 Canadian cent to yield 2.406 percent.