CANADA FX DEBT-Loonie weakens amid caution, eyes on Fed
* Canadian dollar at C$1.0645 or 93.94 U.S. cents * Bond prices lower across the maturity curve By Leah Schnurr TORONTO, Dec 18 (Reuters) - The Canadian dollar weakened against the greenback on Wednesday amid investor caution ahead of a statement from the Federal Reserve later in the day that could signal the start of the U.S. central bank's withdrawal of its economic stimulus. The Fed will conclude a two-day policy meeting with a statement at 2:00 p.m. EST (1900 GMT), followed by a news conference by Chairman Ben Bernanke shortly after. The Fed is currently buying $85 billion a month in bond purchases to keep borrowing costs low and boost the economy. Recent better-than-expected economic data and a budget deal in Washington has led some investors to believe the Fed may be comfortable with the idea of trimming its market-friendly bond purchases sooner rather than later. Markets have been focused on this meeting for weeks and expectations are divided over whether that reduction will be announced on Wednesday or if the Fed will hold off until early next year. Anticipation over the meeting overshadowed strong Canadian wholesale trade numbers. "Considering the fact that everybody has been waiting for this Fed meeting for quite a while now, it's quite clear that nothing but the Fed is going to move markets," said Greg Moore, FX strategist at TD Securities in Toronto. While Moore expects Wednesday's meeting might be a little bit too soon for the Fed to begin tapering, "the fact that quite a number of market participants are expecting tapering could happen today means that there will be a pretty sharp reaction in either case," he said. TD Securities forecasts a Fed decision on dialing back stimulus at its next meeting in January. The Canadian dollar was at C$1.0645 to the greenback, or 93.94 U.S. cents, weaker than Tuesday's close of C$1.0610, or 94.25 U.S. cents. A faster timetable for withdrawing stimulus is seen as bearish for the Canadian dollar because it is expected to reduce appetite for risk and benefit the U.S. currency. Markets were caught off guard in September when the Fed decided to hold steady, rather than trim the program as many had expected. If tapering is not announced later on Wednesday, the loonie could head toward the upper C$1.05 area, said Moore, while a reduction in asset purchases could see the currency test its recent lows around C$1.07. The Canadian dollar traded as low as C$1.0708 earlier in the month, its lowest level in 3-1/2 years. At home, data showed Canadian wholesale trade jumped in October as sales in the machinery, equipment and supplies subsector grew at the fastest rate in a decade. The loonie saw little reaction to the data. Canadian government bond prices were lower across the maturity curve, with the two-year down 1-1/2 Canadian cents to yield 1.116 percent and the benchmark 10-year down 27 Canadian cents to yield 2.676 percent.
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