C$ firms after Fed comments, hits 7-month high
* C$ ends at C$0.9835 to the US$, or $1.0168 * Hits highest since Sept. 19 at C$0.9823 * US$ slips after Bernanke, Fed statement * Bond prices mostly lower By Jon Cook TORONTO, April 25 (Reuters) - Canada's dollar hit a seven-month high against its U.S. counterpart o n W ednesday as euro zone debt concerns eased and the U.S. Federal Reserve said it would keep interest rates on hold until at least late 2014, a week after the Bank of Canada signaled it may withdraw stimulus measures. The Fed repeated its promise to leave interest rates on hold near zero and described the U.S. economy as expanding moderately. Chairman Ben Bernanke added that the central bank "would not hesitate" to launch another round of bond purchases to drive borrowing costs lower if it looked like the economy needed it. The Fed decision contrasted sharply with last week's Bank of Canada announcement that surprised the market with its hawkish tone and its suggestion that it may need to start raising interest rates. "Right now, Canada is looking like one of the rare countries where there's possible hikes in place," said Sebastien Lavoie, an economist at Laurentian Bank of Canada BLC Securities. "Whereas in other countries, there will probably be no modification at all in the stance of monetary policy." Higher interest rates or expectations of higher rates tend to help currencies strengthen by attracting international capital flows. The Canadian dollar would likely strengthen further against the greenback should Canada raise rates ahead of the Fed. The Canadian dollar finished at C$0.9835 against the U.S. dollar, or $1.0168, up from Tuesday's close at C$0.9880 against the U.S. dollar, or $1.0121. It touched C$0.9823, its highest against the greenback since Sept. 19. Bank of Canada Governor Mark Carney was set to address the Senate Standing Committee on Banking on Wednesday, a day after he told the House of Commons finance committee that the central bank might have to increase interest rates because of the stronger performance of the economy and firmer underlying inflation. A recent Reuters survey of the country's primary dealers showed the median forecast for the timing of the next rate increase being pushed up to the first quarter of 2013. "The idea that Carney will not wait for Bernanke to eventually withdraw some of the stimulus is certainly a positive development for an appreciation of our currency," said Lavoie. Andrew Kelvin, senior fixed-income strategist at TD Securities, said the divergence in monetary policy positions between the two central banks was "significant" and saw the Canadian dollar eventually strengthening to C$0.950 against the greenback, or $1.050, by end of 2013. The Canadian currency also benefited from a rally in equity markets, which advanced after forecast-beating results from Apple Inc, and an easing of conditions in Europe reflected by weaker demand at a German auction of new 30-year bonds. Canadian government bond prices were mostly lower, mirroring a drop in U.S. Treasuries, following the rally in equities and the Fed announcement. A sale of Canadian three-year bonds drew strong demand and the average yield rose to 1.598 percent, its highest in nearly a year. "The higher yield just reflects the fact that the Bank of Canada is coming back in play sometime in 2012," said Kelvin. "We expect them to raise rates by September." Canada's two-year bond edged down 3 Canadian cents to yield 1.436 percent. The benchmark 10-year bond sank 32 Canadian cents to yield 2.110 percent.
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