CANADA FX DEBT-C$ hits 2-week high ahead of Fed, U.S. elections
* C$ firms to 98.42 U.S cents
* Gets early lift from Chinese data, commodity rise
* Central banks, U.S. elections, data jockey for attention
* Ottawa to rule on BHP's bid for Potash Corp this week (Updates to close)
By Claire Sibonney
TORONTO, Nov 1 (Reuters) - Canada's dollar firmed to a two-week high against its U.S. counterpart on Monday, helped by firm Chinese data, but investors were mostly focused on the U.S. Federal Reserve's plans to provide more monetary stimulus.
The Fed is likely to announce on Wednesday a fresh round of quantitative easing, under which the U.S. central bank would create new dollars and use them to buy bonds in a bid to revitalize the economy.
"There are some doubts about the size of the QE program, which recently was supporting the U.S. dollar but nonetheless the Fed is poised to restart the printing press, and crank out more greenbacks, which is always a plus for the other currency," said Sal Guatieri, senior economist at BMO Capital Markets.
Most economists expect the Fed to buy $80 billion to $100 billion in assets per month, according to a Reuters poll. Estimates of total purchases ranged from $250 billion to $2 trillion. [ID:nNLLRLE6LL]
Canada's dollar received an early lift from data showing China's factories ramped up production last month, buoyed by an influx of new business, highlighting the strength of the world's second-largest economy. [ID:nTOE6A001P]
The currency eventually rose as high as C$1.0126 to the U.S. dollar, or 98.75 U.S. cents, as both commodity and equity markets rallied. But it pared gains as stocks slipped into negative territory.
Analysts said many investors were reluctant to make big bets ahead of the Fed meeting, as well as U.S. midterm elections on Tuesday.
"We've got a lot of event risk still the rest of this week," said Steve Butler, director of foreign exchange trading at Scotia Capital.
"The market is a little bit cautious about getting too long Canada on the move down this morning so not surprised to see people bailing out this afternoon."
BMO's Guatieri said a strong Republican victory on Tuesday could prompt an equity market rally, which could support peripheral currencies including the Canadian dollar.
Looking ahead to the rest of the week, policy decisions are also due from the European Central Bank as well as the central banks of Australia, Japan, and England. U.S. and Canadian monthly jobs data, due Friday, is also key.
In addition, investors will also be keeping an eye on developments in Anglo-Australian miner BHP Billiton's push to buy Potash Corp., a fertilizer giant and one of Canada's biggest companies.
Ottawa is due to decide by Nov. 3 whether BHP's bid will bring a net benefit to Canada, which would allow it to clear the bid or approve it with conditions. [ID:nLDE6A00HD]
The deal, currently worth $39 billion, boosted the Canadian dollar when it was first announced in August. If successful, the currency is likely to get another lift as many Canadian shareholders convert their U.S. dollar payouts back to the domestic currency.
The Canadian dollar ended the North American session at C$1.0161 to the U.S. dollar, or 98.42 U.S cents, up from Friday's finish at C$1.0202 to the U.S. dollar, or 98.02 U.S. cents.
Butler noted however that the area around C$1.01 to C$1.0120 was still providing support for the U.S. dollar.
"If we can close below C$1.0080, I think the market will feel a lot better about Canada," he said.
BOND PRICES SAG
Canadian bond prices dipped, tracking U.S. Treasuries lower, as stronger-than-forecast U.S. manufacturing and construction spending data had investors rethinking the potential Fed purchases of long-term debt.
While the prospect of quantitative easing has recently pushed yields lower, that has largely already been priced in, said Guatieri.
"Now if the Fed surprises on the upside and dishes out more QE than the market expects, we could see a further rally in Treasuries," he noted.
The two-year bond CA2YT=RR was off 2 Canadian cents to yield 1.414 percent, while the 10-year bond CA0YT=RR shed 25 Canadian cents to yield 2.833 percent. (Additional reporting by Ka Yan Ng; Editing by Jeffrey Hodgson)
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