CANADA FX DEBT-C$ turns higher ahead of Fed, bonds lower

Wed Aug 12, 2009 11:40am EDT
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 * C$ charges off overnight low of C$1.1077
 * Canada's trade deficit shrinks in June
 * Bond prices stuck lower across curve
 By Frank Pingue
 TORONTO, Aug 12 (Reuters) - The Canadian dollar bounced off
a three-week low and turned higher on Wednesday as the
greenback relinquished recent gains on caution ahead of the
U.S. Federal Reserve policy statement due later in the day.
 The turn higher follows a string of four straight lower
closes versus the U.S. dollar as falling equities dented demand
for riskier currencies.
 "What we're seeing is a reversal of the past couple trading
sessions where we saw risk off and U.S. dollar bid scenarios no
matter what was coming out," said Firas Askari, head of foreign
exchange trading at BMO Capital Markets.
 The pullback in the U.S. currency came although the Fed is
widely expected to hold its benchmark overnight rate in a range
of zero to 0.25 percent. Market focus will be on the Fed's
statement and how the U.S. central bank characterizes the
recovery. [ID:nN10470294])
 At 11:25 a.m. (1525 GMT), the Canadian unit was at C$1.0899
to the U.S. dollar, or 91.75 U.S. cents, up from C$1.1015 to
the U.S. dollar, or 90.79 U.S. cents, on Tuesday.
 That was also up from the overnight low C$1.1077 to the
U.S. dollar, or 90.28 U.S. cents, which marked a new three-week
low for the currency.
 Also aiding the Canadian dollar was data that showed
Canada's trade deficit came in at a much smaller than expected
C$55 million in June from C$1.1 billion in May.
 Askari noted that there is little liquidity in the market
given the generally quiet August trading period, which he said
was likely contributing to the big swings in direction for the
Canadian dollar.
 Canadian Finance Minister Jim Flaherty, speaking to
reporters after three days of meetings in Beijing, said global
policymakers must secure a rock-solid economic recovery before
they turn their attention to exit strategies from stimulus
policies or a discussion of exchange rates.
 Flaherty also repeated that the positive signs in the
economy have been encouraging but tentative. [ID:nPEK61145]
 Canadian bond prices were lower across the curve, mirroring
the direction in the bigger U.S. Treasury market, as a rally in
North American equities dampened the attraction of safe-haven
government debt.
 But the move was limited ahead of Fed's policy statement,
which may contain clues to whether the central bank may tweak
its Treasury purchases, the pillar of its quantitative easing
strategy for reviving the economy.
 The two-year Canadian bond was down 1 Canadian cent at
C$99.29 to yield 1.353 percent, while the 10-year bond slipped
37 Canadian cents to C$101.68 to yield 3.545 percent.
 The 30-year bond slipped 55 Canadian cents to C$116.40 to
yield 4.015. In the United States, the 30-year bond yielded
4.479 percent.
 (Editing by Peter Galloway)