CANADA FX DEBT-C$ hits 8-wk high as US$ slides after Fed comment
* C$ ends higher at 97.99 U.S. cents
* Up 0.5 pct for the week
* US$ slides on expectations of further Fed action
* Bonds prices soft after firm data, Thursday gains (Updates to close, adds quote)
By Jennifer Kwan
TORONTO, Oct 1 (Reuters) - Canada's dollar rose to its loftiest level in eight weeks against the U.S. currency on Friday, as the greenback slid on comments by a U.S. Federal Reserve official that raised expectations of a further easing of monetary policy.
The Canadian dollar CAD=D4 soared as high as C$1.0188 to the U.S. dollar, or 98.15 U.S. cents, its strongest level since Aug. 6, as the U.S. currency tumbled to a six month low against the euro.
The greenback fell after William Dudley, president of the New York Fed, said more action by the central bank to boost growth will likely be warranted unless the outlook improves.
For more details, see: [FRX/] [ID:nN30290786] For Dudley's comments, see [ID:nNLL1LE6II].
"It is a U.S. dollar weakness story more than anything else. The reason for that weakness is that quantitative easing is very much on the table right now," said Eric Lascelles, chief Canada macro strategist at TD Securities.
Quantitative easing would expand the Fed's balance sheet through the buying of government Treasuries, a policy intended to stimulate spending and investments that have been lacking due to high unemployment and economic worries.
The currency ended the day at C$1.0205 to the U.S. dollar, or 97.99 U.S. cents, comfortably higher from Thursday's finished at C$1.0290 to the U.S. dollar, or 97.18 U.S. cents.
The Canadian dollar was up 0.5 percent for the week.
The weaker U.S. dollar aided oil and gold prices higher, another area of support for the Canadian currency. [O/R] [GOL/]
Also supportive of the Canadian currency were gains in equity markets, boosted in part by Chinese manufacturing data and some U.S. economic reports. [.N]
However, Jack Spitz, managing director of foreign exchange at National Bank Financial, noted the domestic currency has recently lagged against major crosses on lowered market expectations the Bank of Canada will hike rates in October.
The Canadian dollar EURCAD=R touched its weakest level versus the euro since early March on Friday.
Markets are pricing in an 89 percent probability the bank will hold rates steady on Oct. 19, based on a Reuters calculation using overnight index swaps.BOCWATCH
That sentiment was supported by a string of recent domestic economic data and the Bank of Canada Governor Mark Carney, who said on Thursday record high household-debt levels and a soft U.S. export market mean modest economic growth for Canada in the months ahead, suggesting further interest rate hikes will likely be delayed. [ID:nN30286204]
Still, "we were kind of due for a day like this" given the currency's recent performance, said Shane Enright, executive director, foreign exchange sales at CIBC World Markets.
"Oil has been strong, equity markets have been positive," said Enright. He added the next key technical levels to watch for include C$1.01 and C$1.0120 to the U.S. dollar.
Canadian government bond prices were flat to lower, along with U.S. Treasury prices, which fell as traders digested improved U.S. economic data and the message from the Fed official. [US/]
TD's Lascelles said the sell-off partly reflects a reversal of gains seen the day before after soft domestic growth data and Carney's dovish commentary.
"The pessimism is not as pervasive," he said.
Lascelles added it's the first day of the month and quarter and some money managers may be rebalancing portfolios, which could mean pushing the flow of money to equities rather than bonds.
The two-year bond CA2YT=RR sagged 1 Canadian cent to yield 1.372 percent, while the 10-year bond CA10YT=RR fell 30 Canadian cents to yield 2.792 percent. (Editing by Jeffrey Hodgson)
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