CANADA FX DEBT-C$ cuts losses, bonds rise after Fed statement

Tue Aug 10, 2010 3:43pm EDT
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* C$ pares losses to 96.84 U.S. cents

* Bonds firm; 10-yr yield hits lowest level since April

* U.S. Fed says to buy long-dated debt (Adds details)

By Ka Yan Ng

OTTAWA, Aug 10 (Reuters) - The Canadian dollar recovered some of the session's losses against the U.S. currency on Tuesday after the U.S. Federal Reserve renewed its pledge to keep interest rates low and said it would reinvest mortgage bond proceeds.

The Canadian currency rebounded to as high as C$1.0298 to the U.S. dollar, or 97.11 U.S. cents, from C$1.0360 to the U.S. dollar, or 96.53 U.S. cents before the announcement.

By 3:30 p.m. (1930 GMT), the Canadian dollar was at C$1.0326 to the U.S. dollar, or 96.84 U.S. cents, still down from Monday's finish at C$1.0267 to the U.S. dollar, or 97.40 U.S. cents.

The Fed's rate decision, widely expected, also accompanied the U.S. central bank's announcement that it would begin funneling proceeds from its maturing mortgage bonds into longer-term government debt in an effort to support the sputtering U.S. recovery. The U.S. dollar responded by erasing gains against the euro. [FRX/] [ID:nWALMHE6AQ]

Still, the Fed's announcement wasn't enough to overcome other factors such as weak data and commodity prices, while the soft U.S. economic profile also weighed on Canada, its biggest trading partner.   Continued...