CANADA FX DEBT-C$ weakens slightly after Fed holds steady

Wed May 1, 2013 4:36pm EDT
 
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* C$ at C$1.0081 vs US$, or 99.20 U.S. cents
    * Fed, as expected, points to later tapering of QE3
    * Bonds higher across the curve

    By Alastair Sharp
    TORONTO, May 1 (Reuters) - The Canadian dollar ended
slightly weaker against its U.S. counterpart on Wednesday after
five straight days of gains as the Federal Reserve maintained
its plan to buy bonds in order to keep borrowing costs low to
prop up the U.S. economy.
    Expectations that the Fed would make a dovish policy
statement had helped push the loonie, as Canada's currency is
colloquially known, higher in the run-up to the announcement.
    "Dollar/Canada has come a long way in the past few days,"
said Greg Moore, foreign exchange strategist at TD Securities,
"Expectations were pretty much spot on, so that may be why we're
not seeing too much reaction in the aftermath."
    The Fed expressed concern about an economic drag from
Washington's belt-tightening, and reinforced its intention to
keep buying assets until unemployment falls significantly.
 
    Moore said the move stronger was likely exaggerated by
investors covering bets on loonie weakness, and the currency
could fall back towards C$1.02 in the next week or so as focus
turns to the global economy's potential mid-year soft patch.
    The Canadian dollar ended the session trading at
C$1.0081 to the greenback, or 99.20 U.S. cents, compared to
C$1.0075, or 99.26 U.S. cents, at Tuesday's North American
close.
    The currency has gained roughly 1.8 percent in the last
week, helped by more positive domestic data.
    "We have a mixed bag of things, we have better fundamental
data, so retail sales and GDP helped," said Camilla Sutton,
chief currency strategist at Scotiabank.
    Retail sales data for February surprised market participants
last week, while stronger-than-expected gross domestic product
data for February released on Tuesday backed up the view of a
rebound.  
    She said the currency found it difficult to move much more
than a few cents either side of equal value with the greenback.
    "We trade close to parity, and we really struggle to move
sustainably or substantially away from it," she said. "For every
positive factor there's an offsetting negative factor."
    Prices for Canadian government debt were higher across the
curve, with the two-year bond up more than a Canadian
cent to yield 0.916 percent and the benchmark 10-year bond
 rising 16 Canadian cents to yield 1.682 percent.