CANADA FX DEBT-C$ weakens as Fed uncertainty keeps investors at bay

Tue Sep 24, 2013 4:41pm EDT
 
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* C$ at C$1.0302 against U.S. dollar
    * Canadian retail sales rose 0.6 percent in July
    * Bond prices rise across the curve


    By Leah Schnurr
    TORONTO, Sept 24 (Reuters) - The Canadian dollar weakened on
Tuesday as the currency was kept in a narrow range by
uncertainty over the direction of the Federal Reserve's economic
stimulus plans, while in-line domestic retail sales failed to
give the loonie much support.
    The dollar briefly hit a session high after data showed
Canadian retail sales rose 0.6 percent, in line with economists'
expectations in July, but the currency quickly cut gains. The
improvement in sales reversed a drop posted the month before.
 
    After last week's market-surprising decision from the
Federal Reserve to hold the pace of its bond-buying program
steady, investors have sought insight from comments from several
Fed policymakers over the last few days.
    Influential New York Fed President William Dudley was the
latest on Tuesday, saying he wouldn't rule out a reduction in
Fed bond-buying later this year. 
    "It's a little bit listless," said Don Mikolich, executive
director of foreign exchange sales at CIBC World Markets.
    "The (Fed) speakers are providing a few clues to the future
direction of tapering, but all told, it's a pretty narrow
range."
    Until there is more robust economic data or a change in
monetary policy on either side of the border, it will be
difficult for the loonie to make big moves, said Mikolich.
    The Canadian dollar ended at C$1.0302 to the U.S.
dollar, or 97.07 U.S. cents, weaker than Monday's session close
of C$1.0285, or 97.23 U.S. cents. 
    The Fed is currently buying $85 billion in bonds a month to
keep borrowing costs low and prop up the economic recovery. The
Canadian dollar touched a three-month high in the wake of the
Fed's decision to stand pat, but has since pulled back from
that.
    "We had a pretty sharp adjustment post-Fed," said Mark
Chandler, head of Canadian fixed income and currency strategy at
Royal Bank of Canada.
    "I think people will get comfortable with the idea that they
linked this to a change in their forecasts. I don't think
expectations will be built up as much for the October meeting
for the Fed."
    A busy schedule of Fed speakers throughout the week is
likely to hold the market's attention.
    Prices for Canadian government bonds were higher across the
maturity curve, with the two-year bond edging up 1/2
a cent to yield 1.208 percent. The benchmark 10-year bond
 rose 41 Canadian cents to yield 2.599 percent.