CANADA FX DEBT-C$ hits 20-mth high, bonds up as Fed stands pat

Tue Mar 16, 2010 4:35pm EDT
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 * C$ ends up at 98.62 U.S. cents
 * Bonds rise in relief rally after Fed rate decision
 * Manufacturing, productivity data firmer than expected
 * More to strong C$ than commodity prices - Flaherty
 (Updates with closing numbers, analyst comment)
 By Ka Yan Ng
 TORONTO, March 16 (Reuters) - The Canadian dollar rose to
its highest level since July 2008 on Tuesday after the U.S.
Federal Reserve held benchmark interest rates near zero, as
expected, and renewed its promise to keep them exceptionally
low for an extended period.
 Building on momentum from firmer oil and equities prices
and stronger-than-expected domestic economic data, the Canadian
dollar rose as high as C$1.0135 to the U.S. dollar, or 98.67
U.S. cents, after the U.S. central bank's decision.
 Tuesday's rise marked the resumption of the currency's
upward march after pausing on Monday as investors took a break
after an 11-day stretch of gains.
 The Canadian dollar ended at C$1.0140 to the U.S. dollar,
or 98.62 U.S. cents, up from Monday's close at C$1.0197 to the
U.S. dollar, or 98.07 U.S. cents.
 The outcome of the U.S. interest rate decision was widely
expected, though the U.S. central bank also pointed to
increased momentum in the economy's recovery. [ID:nN16251615]
 "I'd say we've had a minimal reaction to the Fed release.
There was very little changes from the FOMC," said Camilla
Sutton, currency strategist at Scotia Capital.
 "It was a risk-on day where the U.S. dollar was generally
weaker across the board and most risk assets are doing well. If
we see that continue I think that just pushes the Canadian
dollar one step closer to parity."
 The day's domestic data also provided more proof the
Canadian economy is moving to a surer footing as figures showed
January manufacturing sales higher than expected and labor
productivity rising for the first time in more than a year.
 "Certainly it's pointing to solid growth being sustained,"
said Paul Ferley, assistant chief economist at Royal Bank of
Canada. "At the moment, we're still of the view that we'll see
some moderation from the 5 percent (gross domestic product)
gain in the fourth quarter."
 He said the data was consistent with his forecast that
first-quarter growth would be just under 4 percent, although it
could be higher if statistics continue to come in very firm.
 Earlier, Finance Minister Jim Flaherty appeared more
relaxed with the Canadian dollar's sharp appreciation as he
said the currency's recent rally in part reflects the country's
healthy fiscal position, and does not suggest extraordinary
volatility. [ID:nN16248351]  [ID:nLDE62F1LZ]
 Canadian bond prices were mildly firmer on Tuesday after
the Fed repeated it plans to keep interest rates low for an
extended period.
 "I don't think it caught any one by surprise. But there
were some expectations that there could be a word change," said
Sheldon Dong, fixed income analyst at TD Waterhouse Private
 "It's much more of a relief rally than anything else,
coupled with thin trading conditions."
 The two-year government bond CA2YT=RR was up 4 Canadian
cents at C$99.92 to yield 1.541 percent, while the 10-year bond
CA10YT=RR gained 40 Canadian cents to C$102.41 to yield 3.442
 Canadian bonds were mixed against their U.S. counterparts.
The difference between 10-year yields widened 0.8 of a basis
point to 21.1 basis points.
 (Editing by Jeffrey Hodgson)