CANADA FX DEBT-C$ weaker as Fed uncertainty plagues investors

Thu Dec 12, 2013 4:41pm EST
 
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* Canadian dollar at C$1.0640 vs US$, or 93.98 U.S. cents
    * U.S. data helps greenback
    * Loonie sees little reaction to Poloz comments
    * Bond prices mixed across the maturity curve


    By Leah Schnurr
    TORONTO, Dec 12 (Reuters) - The Canadian dollar weakened
against the greenback on Thursday after strong retail sales and
a recent budget deal south of the border prompted some
speculation the Federal Reserve could start unwinding its
economic stimulus sooner rather than later.
    At home, the loonie saw little reaction to comments from
Bank of Canada Governor Stephen Poloz, who said the central bank
is likely to keep interest rates on hold "for quite some time",
dampening talk that it was edging closer to cutting rates in
order to combat low inflation. 
    "The Bank may not be as dovish as people thought they were,"
said Benjamin Reitzes, senior economist at BMO Capital Markets
in Toronto.
    "There was an increasing market lean toward the Bank being
consistently more dovish. It certainly looked that way in their
statements, so I wouldn't totally discount that, but maybe he is
just trying to take the edge off a little bit at this point."
    The loonie has lost more than 3 percent since late October
when the central bank dropped its long-held rate hike bias.
    Along with expectations that rates will stay low for longer,
the loonie has also been hit by uncertainty about the path of
U.S. monetary policy and the currency touched a 3-1/2-year low
last week.
    The Canadian dollar ended the North American
session at C$1.0640 to the greenback, or 93.98 U.S. cents,
weaker than Wednesday's close of C$1.0593, or 94.40 U.S. cents.
    Data showed Americans bought more automobiles and other
goods in November, adding to signs of a strengthening economy
that could draw the Fed closer to reducing the pace of monetary
stimulus, though the outlook was clouded somewhat by a big jump
in first-time applications for unemployment benefits last week.
 
    The reports come on the heels of last week's
better-than-expected employment report and a provisional budget
deal in Washington. 
    Investors are focused on trying to gauge when the Fed will
trim its bond-buying program, which has been a major driver in
markets this year and currently stands at $85 billion a month.
Fed policymakers will meet next week.
    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 mixed across the
maturity curve, with the two-year unchanged to yield
1.100 percent and the benchmark 10-year down 15
Canadian cents to yield 2.667 percent.