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

Wed Dec 11, 2013 4:37pm EST
 
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* Canadian dollar at C$1.0593 or 94.40 U.S. cents
    * Bond prices lower across the maturity curve
    * Bank of Canada head Poloz to speak on Thursday


    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.
    Investors could also get more insight into policy at home,
with Bank of Canada Governor Stephen Poloz scheduled to give a
speech on Thursday on "Monetary Policy as Risk Management". The
central bank's recent more dovish stance is expected to weigh on
the Canadian dollar in the long-term.
    "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 ended the North American
session 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 U.S. crude futures were down on Wednesday,
prices have firmed since the beginning of the month, lending
support to the commodity-sensitive loonie. Brent crude 
settled up 32 cents at $109.70 a barrel.
    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 currency could see a retracement to as far as the mid-
to low-C$1.05 levels, said Gareth Sylvester, director at Klarity
FX in San Francisco.
    "I think that would be a healthy correction in the context
of the ascending market that we've witnessed over the last few
weeks and months," said Sylvester. In the longer term, the
loonie could fall back to around C$1.085, he said.
    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.
    Canadian government bond prices were lower across the
maturity curve, with the two-year off 3-1/2 Canadian
cents to yield 1.095 percent and the benchmark 10-year
 was down 23 Canadian cents to yield 2.643 percent.