CANADA FX DEBT-C$ strengthens at prospect of U.S. Fed tapering

Wed Nov 20, 2013 4:42pm EST
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* C$ at C$1.0447 vs US$, or 95.72 U.S. cents
    * Fed minutes say tapering could begin in next few months
    * Bernanke says Fed will maintain monetary policy as long as
    * Poloz makes parliamentary appearance, dovish comments

    By Solarina Ho
    TORONTO, Nov 20 (Reuters) - The Canadian dollar outperformed
major currencies and held on to  gains against the U.S. dollar
on Wednesday after U.S. Federal Reserve minutes suggested the
Fed could scale back its bond buying in the next few months if
the economy improves enough.
    The greenback was under pressure earlier following
indications from the Fed that it would maintain its ultra-loose
monetary policy for as long as necessary.
    The minutes from the Fed's Oct. 29-30 policy meeting also
showed officials said any move would depend on evidence the
economy was growing adequately. 
    Fed officials will next meet on Dec. 17-18.
    "We're pretty much unchanged on the day. The Fed minutes
provided nothing new for us," said John Curran, senior vice
president at CanadianForex. "Tapering is going to be the major
event that people are gearing towards... People will be watching
U.S. data with renewed interest heading into early next year."
    A gauge of U.S. consumer spending rose more than expected in
October, suggesting upside momentum in the economy early in the
fourth quarter, while inflation data showed an unexpected fall
in consumer prices in October. 
    The Canadian dollar finished the North American
session at C$1.0447 versus the U.S. dollar, or 95.72 U.S. cents,
stronger than Tuesday's North American close at C$1.0471, or
95.50 U.S. cents.
    In a speech late Tuesday, Fed Chairman Ben Bernanke said
that despite an improved U.S. economy, officials want proof of
sustained job growth before the central bank scales back its
bond-buying stimulus. Bernanke said interest rates were likely
to remain near zero for a considerable time after the asset
purchases end. 
    "I think the timeline is, any rate hike before 2016 seems to
be very unlikely in his mind. And you can feel that tapering is
something they want to do," said Charles St-Arnaud, economist
and currency strategist with Nomura Securities in New York.
    Bank of Canada Governor Stephen Poloz will be making a
parliamentary appearance after markets close on Wednesday, which
could provide some direction for the Canadian dollar.
    "The market's prepared for some more dovish comments out of
Poloz. I don't foresee a great deal happening after his speech,
but this is where surprises could come from," said Curran.
     Last month, the central bank surprised markets with a shift
in policy, dropping any mention of eventual increases in rates
following 18 months of warnings that borrowing costs will one
day rise. 
    Curran said the currency was trapped in a range and that the
market will next be eyeing Canadian retail sales and CPI data on
    Canadian bond prices were mostly lower across the maturity
curve, but the two-year bond was up 2 Canadian cents
to yield 1.117 percent. The benchmark 10-year bond 
was down 50 Canadian cents to yield 2.629 percent.