CANADA FX DEBT-C$ rises on Fed prospects, bonds slide

Tue Oct 12, 2010 5:26pm EDT
 
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   * C$ ends session at C$1.0106 or 98.95 U.S. cents
 * Bonds fall across the curve
 By John McCrank
 TORONTO, Oct 12 (Reuters) - The Canadian dollar gained
against the greenback on Tuesday after minutes from the U.S.
Federal Reserve's latest meeting confirmed that the U.S.
central bank would likely soon inject the markets with cash to
support the flagging economy.
 Fed officials said in their Sept. 21 policy-setting session
that they had a "sense that (more) accommodation may be
appropriate before long," including buying additional
longer-term Treasury securities. [ID:nN12191658]
 "The Fed is lining up for quantitative easing, and by that
token, the market is getting rather beside itself with
enthusiasm, so the Canadian dollar is up and and equities are
higher," said Eric Lascelles, chief Canada macro strategist at
TD Securities.
 Stock markets recovered from earlier losses, with the
Toronto Stock Exchange hitting a two-year high and the Dow
Jones industrial average hitting a five-month high, after the
minutes were released. [ID:nTZOCLE66Q] [ID:nN12202167]
 The Canadian dollar CAD=D4 closed the North American
session at C$1.0106 to the U.S. dollar, or 98.95 U.S. cents, up
slightly from Friday's finish at C$1.0113 to the U.S. dollar,
or 98.88 U.S. cents, before the Canadian Thanksgiving and U.S.
Columbus Day long weekends.
 The currency hit a high of C$1.0089, or 99.12 U.S. cents,
after the Federal Open Market Committee released its minutes.
 Among major currencies, the Canadian dollar was one of
weakest performers against the greenback, which fell on
prospects of the Fed printing more money to buy assets, said
Shane Enright, a currency strategist at CIBC World Markets.
 "The primary risk (to Canada's economic growth) is the U.S.
economy and relatively small growth in the U.S. economy,"
Finance Minister Jim Flaherty told reporters after a speech in
Mississauga, Ontario. [ID:nN12187547]
 Canada is heavily dependent on the U.S. economy, which
takes in about three-quarters of its exports.
 Flaherty said on Tuesday the federal deficit would narrow
to C$45.4 billion, or 2.8 percent of GDP, in the current fiscal
year, ending March 2011. It said the deficit would shrink
steadily to C$1.7 billion in 2014-15 and become a surplus of
C$2.6 billion in 2015-16.
 BONDS FALL
 Government bond prices fell on Tuesday, which may be partly
a result of dashed market expectations for a smaller government
deficit after strong economic growth early in the year, said
Lascelles.
 "There was the opinion that the deficit might have been
closer to C$40 billion as opposed to settling closer to C$45
billion for 2010-11," he said. "You are not really any more
ahead despite a zippy start to the fiscal year."
 The two-year bond CA2YT=RR fell 11 Canadian cents to
yield 1.377 percent, while the 10-year bond CA10YT=RR tumbled
40 Canadian cents to yield 2.727 percent.
 (Editing by Rob Wilson)