CANADA FX DEBT-C$ firms as view of Fed decision gets cloudy
* Canadian dollar at C$1.1122 or 89.91 U.S. cents * Bond prices higher across the maturity curve By Leah Schnurr TORONTO, Jan 29 (Reuters) - The Canadian dollar firmed against the greenback on Wednesday as the market view of what the U.S. Federal Reserve would say in its policy announcement later in the day became clouded by concern over instability in emerging markets. Investors have expected the U.S. central bank to further scale back its stimulus program, but some analysts say the pressure from emerging markets could spur it to stand pat. The loonie was buffeted by heightened risk aversion around the world with emerging market currencies back under pressure even after a surprisingly large hike in interest rates from Turkey late on Tuesday. The volatility in global markets in recent days has come on a combination of country-specific problems and worries that reduced bond-buying from the Fed will reduce the liquidity that has boosted emerging market assets. The selloff that started late last week has put even more focus on the Fed's policy decision later on Wednesday. Markets have expected the Fed to trim its bond buying by another $10 billion a month. "It's really a story where the Canadian dollar is probably a little bit in the shadows right now," said David Tulk, chief Canada macro strategist at TD Securities in Toronto. "Everyone is looking at risks of contagion in the emerging world and seeing, ultimately, if that will effect the Fed's decision whether they want to continue to taper their asset purchase program." The Canadian dollar was at C$1.1122 to the greenback, or 89.91 U.S. cents, stronger than Tuesday's close of C$1.1156, or 89.64 U.S. cents. The loonie briefly touched a 4-1/2-year low on Tuesday. The perception of some investors that the pressure on emerging markets might prompt the Fed to hold steady was partly contributing to the strength of the Canadian dollar in early trade, Tulk said. A faster timetable for the Fed winding down its quantitative easing program has typically been bearish for the loonie as it boosts the U.S. dollar. Canadian government bond prices were higher across the maturity curve, with the two-year up 1 Canadian cent to yield 0.964 percent and the benchmark 10-year up 28 Canadian cents to yield 2.386 percent.
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