CANADA FX DEBT-C$ flirts with parity after Fed minutes

Wed Oct 13, 2010 10:37am EDT
 
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 * Canada dollar at C$1.0012 or 99.88 U.S. cents
 * Bonds sag as equities rally
 (Adds details, quotes, updates currency level)
 By John McCrank
 TORONTO, Oct 13 (Reuters) - The Canadian dollar flirted
with U.S. dollar parity on Wednesday morning, hitting its
highest level since late April as the market looked forward to
an injection of cheap cash into the U.S. economy by the U.S.
Federal Reserve.
 The expectation of quantitative easing by the Fed --
basically printing cash to buy assets -- gave a lift to
equities markets and a bid to commodities. [MKTS/GLOB]
 The minutes of the Fed's latest policy-setting session,
released on Tuesday, showed officials had a "sense that (more)
accommodation may be appropriate before long," to help get the
economy back on track. [ID:nN12191658]
 "The statement showed a degree of resoluteness in the FOMC
(Federal Open Market Committee) to basically step on the throat
of the deflation threat until it gives up," said David Watt,
senior currency strategist at RBC Capital Markets.
 Canada depends on the U.S. economy to take in about
three-quarters of its exports, which are tilted toward
commodities like oil, metals, and natural gas.
 "Our major trading partner went from looking like it was
going to be one of the leaders on the way out of the global
recession to all of a sudden having an increasingly fretful
outlook," Watt said. "Now, all of a sudden, the Federal Reserve
is basically getting prepared to step on the gas pretty hard
and I think that is playing out to an extent in the Canadian
dollar."
 At 10:08 a.m. (1408 GMT), the Canadian dollar CAD=D4 was
at C$1.0012 to the U.S. dollar, or 99.88 U.S. cents, up from
Tuesday's finish of C$1.0106 to the U.S. dollar, or 98.95 U.S.
cents. It was the currency's highest point against the
greenback since April 30.
 Camilla Sutton, a currency strategist at Scotia Capital,
said that the currency would likely at least touch parity, as
it is "essentially there right now".
 She said the stronger currency helps confirm that the Bank
of Canada will stand pat on interest rates in the near term,
after raising the benchmark rate three consecutive times this
year to 1 percent.
 "Because it's been a U.S. dollar move, and not a Canadian
fundamentals story, that makes it almost more important for the
Bank of Canada," she said. "What that actually does is it
actually tightens policy for them."
 The Canadian dollar has been trading in a range of C$1.0111
to C$1.0679 since June. RBC said that if the the currency
closes the session below C$1.0111, that would point to C$0.9977
and C$0.9913 as the next support targets to watch.
 BONDS SAG
 Bond prices fell on Wednesday as global equity markets
rallied, lessening the allure of safe-haven government debt.
 On the domestic data front, new home prices rose 0.1
percent in August after declining by the same amount in July,
reflecting a slowdown in the housing market after robust growth
for much of the past year. [ID:nN1379036]
 Analysts in a Reuters poll had forecast, on average, a 0.1
percent decline in the August index.
 The two-year bond CA2YT=RR was down 1 Canadian cent for a
yield of 1.381 percent, while the 10-year bond CA10YT=RR was
down 20 Canadian cents, yielding 2.750 percent.
 (Editing by Peter Galloway)