CANADA FX DEBT-C$ firms but investors keep eye on Fed policy

Wed Dec 11, 2013 9:42am EST
 
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* Canadian dollar at C$1.0593 or 94.40 U.S. cents
    * Bond prices lower across the maturity curve

    By Leah Schnurr
    TORONTO, Dec 11 (Reuters) - The Canadian dollar strengthened
against the greenback on Wednesday as a lack of data and recent
stabilization in oil prices gave the loonie some relief after
last week's rout.
    While the loonie has recovered some ground this week after
hitting a 3-1/2-year low, analysts expect the currency will
trade in a range heading into next week's meeting of Federal
Reserve policymakers, which is expected to shed light on the
path of U.S. monetary policy.
    "It was just time for a little bit of a pullback until we
see what the next round of data and discussions look like," said
Don Mikolich, executive director of foreign exchange sales at
CIBC World Markets in Toronto.
    "Most forecasts seem to be calling for C$1.06 and above for
the next quarter or so. Any movement lower here is seen as
temporary relative to a major change in direction."
    The Canadian dollar was at C$1.0593 to the
greenback, or 94.40 U.S. cents, stronger than Tuesday's close of
C$1.0603 , or 94.31 U.S. cents.
    Although oil prices were down modestly on Wednesday, crude
has firmed since the beginning of the month, lending support to
the commodity-sensitive loonie. 
    Since trading as far as C$1.0708 last week, the currency has
risen by more than 1 percent. Still, the Canadian dollar is down
nearly 3 percent since late October when the Bank of Canada
first dropped its rate-hike bias.
    The major focus for markets has been when the Fed will start
to reduce its stimulative bond-buying program. Investors are
trying to gauge whether the central bank will announce the wind
down next week or hold off until the new year.
    The Fed is currently buying $85 billion a month in bonds as
part of its quantitative easing, or "QE", program as it tries to
keep borrowing costs low to boost the economic recovery.
    A faster timetable for the Fed is seen as a negative for the
Canadian dollar as the move is expected to reduce risk appetite
and benefit the U.S. currency.
    A dovish stance from the Bank of Canada is also expected to
weigh on the Canadian dollar in the long-term. Bank of Canada
Governor Stephen Poloz is scheduled to give a speech on Thursday
on "Monetary Policy as Risk Management".
    Canadian government bond prices were lower across the
maturity curve, with the two-year off 1.7 Canadian
cent to yield 1.087 percent and the benchmark 10-year
 down 7 Canadian cents to yield 2.623 percent.