CANADA FX DEBT-C$ falls through 80 U.S. cents after Fed statement

Wed Jan 28, 2015 4:43pm EST
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article
[-] Text [+]

(Adds strategist's comment, updates prices to close)
    * Canadian dollar at C$1.2520, or 79.87 U.S. cents
    * Bond prices higher across the maturity curve

    By Alastair Sharp
    TORONTO, Jan 28 (Reuters) - The Canadian dollar fell sharply
against the greenback on Wednesday, closing below the key
psychological barrier of 80 U.S. cents, after the U.S. Federal
Reserve stuck with the view that U.S. interest rates could rise
this year.
    The Fed's outlook contrasted with the Bank of Canada's shock
rate cut of last week, and that divergence in monetary policy,
coupled with cheap oil, is likely to keep pressure on the
loonie, as Canada's currency is colloquially known.
    "That will remain one of the key underlying drivers of
further strength in dollar/Canada, on top of the obvious support
from very low oil prices now," said Greg Moore, senior currency
strategist at Royal Bank of Canada.
    Prices for oil, a major Canadian export, dropped anew on
Wednesday as record-high U.S. inventories fed longstanding fears
of a global glut. 
    The Canadian dollar ended the day at C$1.2520 to
the greenback, or 79.87 U.S. cents, much softer than Tuesday's
close of C$1.2404, or 80.62 U.S. cents.
    It was the loonie's weakest close since April 1, 2009, and
indicated a sustained breach of psychologically important
    "It is fairly significant if we close below that level if
you're talking 80 cents, or above that level if you're talking
C$1.25," said Moore, who noted it means determined selling of
the Canadian currency against large amounts of corporate hedging
at those levels.
    The Fed said in a statement on Wednesday that the U.S.
economy was expanding "at a solid pace", striking an upbeat tone
in contrast to other major central banks, including the Bank of
Canada, and holding to the view that energy-led weakness in U.S.
inflation would dissipate. 
    "Certainly we've had a divergence globally," said Scotiabank
chief currency strategist Camilla Sutton.
    Canadian government bond prices jumped across the maturity
curve, leading to record low yields. The two-year 
rose 10.5 Canadian cents to yield 0.444 percent, while the
benchmark 10-year added 75 Canadian cents to yield
1.355 percent.

 (Additional reporting by Solarina Ho; Editing by Peter