CANADA FX DEBT-C$ inches higher ahead of Fed rate decision

Tue Sep 15, 2015 4:58pm EDT
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(Adds strategist comment, details, closing figures)
    * Canadian dollar at C$1.3247, or 75.49 U.S. cents
    * Bond prices lower across the maturity curve

    By Solarina Ho
    TORONTO, Sept 15 (Reuters) - The Canadian dollar eked out a
small gain against its U.S. counterpart on Tuesday, as stronger
crude prices provided support, but investors were mostly
reluctant to make big bets ahead of a decision on interest rates
by the Federal Reserve on Thursday.
    The loonie was stronger against most of its counterparts,
but gains were tempered by a stronger greenback, which rose
alongside U.S. equities following solid retail sales data for
August, indicating robust domestic demand that could persuade
the Fed to raise rates.  
    The Fed is due to make its next rate decision Thursday and
market participants are divided on whether the central bank will
hike rates or delay such a move until later in the year or 2016.
    "The event risk is just too significant to not pay attention
to," said Brad Schruder, director of foreign exchange at BMO
Capital Markets.
    The Canadian dollar finished trading at C$1.3247 to
the greenback, or 75.49 U.S. cents, marginally firmer than the
Bank of Canada's official close on Monday at C$1.3257, or 75.43
U.S. cents.
    The currency traded between C$1.3227 and C$1.3272.
    Schruder said the question is not necessarily whether the
Fed hikes, but how much is priced in and what will happen next,
particularly to currencies, equities, fixed income and other
asset prices.
    "Does it imply market conditions globally aren't as bad as
everyone thinks and the Fed is leading the way? Does it imply
that the Fed is giving more weight to domestic issues rather
than global? What does it say about the Fed's longer term plans
with respect to the psychological impact this has on markets?"
said Schruder.
    U.S. crude settled up more than 1 percent, buoyed by gains
on Wall Street and higher gasoline prices. U.S. crude's
front-month settled up 59 cents, or 1.3 percent, at
$44.59 a barrel. 
    Canadian government bond prices were lower across the
maturity curve, with the two-year price down 8
Canadian cents to yield 0.500 percent, its highest yield since
early summer and the benchmark 10-year falling 93
Canadian cents to yield 1.573 percent.
    The Canada-U.S. two-year bond spread widened to -31.1 basis
points, while the 10-year spread widened to -71.7 basis points.

 (Reporting by Solarina Ho; Editing by Bernadette Baum and James