CANADA FX DEBT-C$ dips on lack of clarity on Fed rate move

Wed Jul 29, 2015 5:12pm EDT
 
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(Updates throughout with Fed statement, closing figures,
analyst's comments)
    * Canadian dollar at C$1.2944 or 77.26 U.S. cents
    * Bond prices mixed across the maturity curve

    By Solarina Ho
    TORONTO, July 29 (Reuters) - The Canadian dollar ended the
session slightly weaker against its U.S. counterpart on
Wednesday after the U.S. Federal Reserve stayed vague on the
timing of its anticipated interest rate hike.
    The loonie, which was a mid-performer against other major
currencies, rallied briefly after the Fed issued its statement
following a two-day policy meeting. But the currency soon
reversed that gain to trade slightly weaker than Tuesday's
close.
    The Fed said the U.S. economy and labor market were
strengthening, leaving open the possibility of a rate hike in
September. Despite the more positive language, however, the Fed
didn't offer a clear timetable of its plans, and said risks are
"nearly balanced". 
    "Obviously the Canadian dollar has seen some choppy price
action in response to the statement from the Federal Reserve,"
said Scott Smith, senior market analyst at Cambridge Global
Payments in Calgary, adding that the Fed has left the door open
on how it will interpret economic data in the coming months.
    "They did their best at not tipping their hat to whether
it's going to be a September or December rate hike ... There's
some fodder for the hawks, but also you can also look at some
pieces in there with a dovish slant too. So I think it's left
markets in limbo to some extent."
    The Canadian dollar ended the session at C$1.2944
to the greenback, or 77.26 U.S. cents. That was weaker than the
Bank of Canada's official close of C$1.2927, or 77.36 U.S.
cents, on Tuesday. 
    Shortly after the Fed statement, the loonie had strengthened
to a session high of C$1.2860, or C$77.76 U.S. cents.
    Overall, analysts expect the Canadian dollar to weaken
further this year, particularly as the monetary policies of the
U.S. and Canadian central banks diverge. The Bank of Canada has
already cut rates twice this year, by 25 basis points each time.
    Canadian government bond prices were mixed across the
maturity curve, with the longer-term bonds falling. The two-year
 price fell 5 Canadian cents to yield 0.467 percent
and the benchmark 10-year was down 13 Canadian cents
to yield 1.52 percent.
    The Canada-U.S. two-year bond spread narrowed to -24.1 basis
points, while the 10-year spread widened to -76.9 basis points.

 (Reporting by Solarina Ho; editing by Meredith Mazzilli and
Peter Galloway)