CANADA FX DEBT-C$ dips ahead of FOMC, bonds steady

Wed Aug 12, 2009 8:21am EDT
 
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   * C$ weakens as risk aversion dominates
 * Bond prices flat ahead of Fed decision
 * Exit strategies must await recovery-finmin
 By Ka Yan Ng
 TORONTO, Aug 12 (Reuters) - Canada's dollar dipped to a
fresh three-week low against the U.S. currency on Wednesday as
riskier positions were pared ahead of the U.S. Federal
Reserve's policy statement later in the day.
 In overnight trading, the currency fell as low as C$1.1077
to the U.S. dollar, or 90.28 U.S. cents CAD=, a new
three-week low before steadying to about halfway between the
low and Tuesday's North American session close.
 At 7:50 a.m. (1150 GMT), the Canadian dollar was at
C$1.1044 to the greenback, or 90.55 U.S. cents, down from
C$1.1015 to the U.S. dollar, or 90.79 U.S. cents, on Tuesday,
when it finished lower for a fourth straight session.
 Risk aversion has been a dominant theme in recent sessions
after tumbling Chinese stocks dented demand for riskier
currencies.
 "It is indicative that the market is at the point where
they are rethinking their global growth view," said Matthew
Strauss, senior currency strategist at RBC Capital Markets.
 "So in this environment it was not a surprise that we saw
some further risk aversion overnight. And now the FOMC meeting
is a significant event and could provide some risk for the U.S.
dollar."
 While the Fed's policy setting arm is expected to hold its
benchmark overnight rate in a range of zero to 0.25 percent,
the focus is on the Fed's statement and how the U.S. central
bank characterizes the recovery. (For details, see
[ID:nN10470294])
 Meanwhile, 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]
 Domestic bonds could get some home-grown direction when the
June merchandise trade figures and new housing price index are
released Wednesday, but were otherwise flat ahead of the Fed
decision.
 The two-year Canadian bond edged up 1 Canadian cent to
C$99.31 to yield 1.342 percent, while the 10-year bond rose 5
Canadian cents to C$102.10 to yield 3.494 percent. <0#CABMK=>
 The 30-year bond slipped 15 Canadian cents to C$116.80 to
yield 3.993 percent. In the United States, the 30-year bond
yielded 4.422 percent.
 (Reporting by Ka Yan Ng; editing by Jeffrey Benkoe)