CANADA FX DEBT-C$ hits 7-week low after Fed holds steady

Wed Oct 30, 2013 4:55pm EDT
 
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* C$ at C$1.0484 vs US$, or 95.38 U.S. cents
    * Fed holds stimulus program steady
    * Canadian bond prices lower across the curve


    By Leah Schnurr
    TORONTO, Oct 30 (Reuters) - The Canadian dollar dropped to a
seven-week low on Wednesday after the U.S. Federal Reserve
stayed the course on its economic stimulus efforts for now,
although the central bank's tone was not as dovish as some had
expected.
    While the Fed nodded to weaker economic prospects partly due
to the recent fiscal showdown in Washington, the central bank
repeated that downside risks to the outlook have diminished and
it dropped a phrase expressing concern about a run-up in
borrowing costs. 
    "I think it caught the market a little off-guard that they
were still pretty positive on the economy, rather than raising a
little bit of uncertainty there," said Rahim Madhavji, 
president of Knightsbridge FX.com in Toronto.
    The Fed said it will continue buying $85 billion a month in
bonds as it works to boost the economy. 
    The central bank surprised markets with its last policy
decision in September when the Fed maintained its amount of bond
purchases rather than reducing it as had been expected.
Investors have since been trying to gauge the Fed's timetable
for withdrawing its stimulus.
    The Canadian dollar ended the North American
session at C$1.0484 versus the greenback, or 95.38 U.S. cents,
weaker than Tuesday's close of C$1.0470, or 95.51 U.S. cents.
    The loonie hit a session low of C$1.0497, its lowest level
since early September.
    The day's drop in the loonie added to last week's rout after
the Bank of Canada took a more neutral stance in its latest
policy statement, shifting away from its rate-hike bias. The
Canadian dollar has fallen in five of the last six sessions.
    With the Bank of Canada moving away from rate hikes, the
Federal Reserve moving toward tapering its quantitative easing
and sluggish economic growth at home, the Canadian dollar has
few short-term catalysts to support it, said Madhavji.
    "The loonie is caught in this three to six month period
where it doesn't really have much going for it," said Madhavji.
    On tap for Thursday, investors will take in gross domestic
product for August. The economy is expected to have grown by a
slim 0.2 percent. 
    Canadian government bond prices were lower across the
maturity curve. The two-year bond fell 2 Canadian
cents to yield 1.101 percent, and the benchmark 10-year bond
 lost 10 Canadian cents to yield 2.422 percent.