February 1, 2017 / 10:02 PM / 7 months ago

CANADA FX DEBT-C$ weakens but pares losses after Fed decision

* Canadian dollar ends at C$1.3047, or 76.65 U.S. cents
    * Bond prices weaker across much of the yield curve

    By Fergal Smith
    TORONTO, Feb 1 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Wednesday but losses were pared
as a broader recovery for the greenback lost some momentum after
the Federal Reserve interest rate decision.
    The Fed said job gains remained solid, inflation had
increased and economic confidence was rising, although it gave
no firm signal on the timing of its next rate move. 
    "We had an FOMC statement that really wasn't as hawkish as
many were hoping for ... whatever was priced in for a potential
March hike has been unwound," said Bipan Rai, senior macro
strategist at CIBC Capital Markets.
    Some gains for the U.S. dollar index against a basket
of major currencies were clawed back on the interest rate
decision. It follows the worst start to the year in three
decades for the greenback on concerns that the United States was
poised to ditch its two-decade-old "strong dollar" policy.
 
    The Canadian dollar ended at C$1.3047 to the
greenback, or 76.65 U.S. cents, weaker than Tuesday's official
close of C$1.3012, or 76.85 U.S. cents.
    The currency traded in a range of C$1.3032 to C$1.3102.
    Losses for the loonie came even as prices of oil, one of
Canada's major exports, rose. U.S. crude settled $1.07
higher at $53.88 a barrel as investors weighed signs that Russia
and the Organization of the Petroleum Exporting Countries
producers are delivering on promised supply reductions. 
    Bank of Canada Governor Stephen Poloz reiterated on Tuesday
that the firmer Canadian dollar was a headwind for the export
sector.    
    The loonie rose 3.2 percent in January after climbing 3.1
percent in 2016. On Tuesday, it touched its strongest level
since Sept. 9 at C$1.2969.
    Recent domestic data and improving sentiment for
manufacturers globally have helped support Canada's
commodity-linked currency, Rai said.
    The Canadian manufacturing sector grew at its fastest pace
in over two years in January, while some other countries
registered multi-year highs in output.  
  
    Some losses for Canadian government bonds were pared in
sympathy with U.S. Treasuries after the Fed stopped short of a
very hawkish tone.
    The two-year price fell 1 Canadian cent to yield
0.776 percent and the 10-year price declined 8
Canadian cents to yield 1.766 percent.

 (Reporting by Fergal Smith; Editing by Lisa Von Ahn and Lisa
Shumaker)

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