CANADA FX DEBT-C$ rallies after Fed statement on economy and hike expectations

Wed Jun 17, 2015 4:42pm EDT
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(Updates throughout with fresh comment, details on Fed, closing
    * Canadian dollar at C$1.2236 or 81.73 U.S. cents
    * Bond prices mixed across the maturity curve

    By Solarina Ho
    TORONTO, June 17 (Reuters) - The Canadian dollar rallied
against a sharply weaker greenback on Wednesday after the
Federal Reserve signaled that interest rate increases could
start later than anticipated, with the U.S. economy growing
moderately though still strongly enough to support a hike by the
end of the year.
    After contracting in the first quarter, the economy is now
on track to grow between 1.8 percent and 2.0 percent this year,
down from the 2.3 to 2.7 percent range forecast in March, Fed
policymakers said. 
    Still, the statement and forecasts keep the U.S. central
bank on track to raise rates once or twice over its four
remaining policy-setting meetings in 2015.
    "We've seen a lot of people covering their U.S. dollar long
positions," said Rahim Madhavji, president at
    "I was a little surprised with the extent of the move. I
didn't think it would've been that overly negative. In terms of
the longer term picture for the U.S. dollar, it still has all
the catalysts going for it."
    The Canadian dollar, which was mixed against other
currency counterparts, finished the session at C$1.2236 to the
greenback, or 81.73 U.S. cents, sharply firmer than the Bank of
Canada's official close of C$1.2312, or 81.22 U.S. cents, on
    The currency traded between C$1.2221 and C$1.2393, at one
point touching its strongest in about a week. 
    "It's totally a U.S. dollar story. It's driven by U.S.
dollar weakness. The Canadian dollar doesn't have a strong
catalyst today," said Madhavji. "We look at this as an
opportunity to buy U.S. dollars on dips."
    Data showed Canadian wholesale trade jumped by 1.9 percent
in April from March, far more than the 0.3 percent forecast,
erasing some declines early in the year. 
    Canadian government bond prices were mixed across the
maturity curve, but the two-year price was down half
a Canadian cent to yield 0.610 percent while the benchmark
10-year fell 16 Canadian cents to yield 1.756
    The Canada-U.S. two-year bond spread was -4.7 basis points,
while the 10-year spread was -56.2 basis points.

 (Reporting by Solarina Ho; Editing by Peter Galloway and James