CANADA FX DEBT-C$ backs off 1-week high on Fed reticence

Wed Jun 22, 2011 5:02pm EDT
 
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   * C$ ends at C$0.9726 to the U.S. dollar, or $1.0282
 * Hits one-week high, then retreats
 * Bond prices flat to higher
 * Fed downgrades economic assessment, sees pickup
 (Adds details)
 TORONTO, June 22 (Reuters) - The Canadian dollar touched a
one-week high against the greenback on Wednesday, then reversed
course after the U.S. Federal Reserve gave no hint that it
would offer more monetary support to the U.S. economy.
[ID:nN1E75K22F]
 The Fed said the pace of U.S. economic recovery was
proceeding more slowly than it had expected, but it expressed
hope that growth would pick up soon without it pumping money
into the system for a third time. [ID:nN1E75K22F]
 "There was a glimmer of hope that at some point the Fed
would turn to QE3, but Bernanke pushed that hope very far off
into the future," said Camilla Sutton, chief currency
strategist at Scotia Capital in Toronto.
 The Canadian currency pushed as high as C$0.97 to the U.S.
dollar, or $1.0309, its highest level since June 15. But by the
the end of the North American session, mirroring movements in
the euro, the Canadian dollar CAD=D4 erased those gains and
finished at C$0.9726 to the U.S. dollar, or $1.0282, slightly
lower than Tuesday's finish of C$0.9724, or $1.0284.
 The Fed said it will end its second round of quantitative
easing, or QE2, as planned at the end of this month and
continue reinvesting principal payments.
 "They pretty much stuck to their guns about a second half
recovery and suggested the bar was set relatively high for QE3,
but again, that was already mostly built into expectations,"
said Mark Chandler, head of Canadian fixed income and currency
strategy at RBC Capital Markets.
 Early in the day, the currency had fallen as low as
C$0.9754 to the U.S. dollar, or $1.0252, but clawed back on
relief that the Greek government had survived a parliamentary
confidence vote, overcoming a key hurdle to a debt deal.
 Still, pressure was on the debt-ridden country to approve
tough austerity measures before it gets fresh funding from the
European Union and the International Monetary Fund.
[ID:nLDE75K21X]
 Canadian Finance Minister Jim Flaherty called on Europe on
Wednesday to get a "clear voice" to stop the Greek crisis from
spreading [ID:nLDE75K21X] and the Bank of Canada said the
single biggest threat to Canadian banks comes from sovereign
debt problems.
 But in its twice-yearly Financial System Review, the
central bank also concluded the Canadian banking system overall
is sound and resilient. [ID:nN1E75L04K]
 In remarks to a Senate committee, Bank of Canada Governor
Mark Carney said the country's economic growth is expected to
slow to modest rates in the short term, echoing comments made
in the Financial System Review and the outlook in the bank's
most recent Monetary Policy Report. [ID:nOLAMHE7FK]
 Canadian government bond prices were flat to higher across
the curve, tracking their U.S. counterparts, after the Fed
lowered its growth outlook.
 The two-year bond CA2YT=RR edged up 2 Canadian cents to
yield 1.510 percent, while the 10-year bond CA10YT=RR climbed
6 Canadian cents to yield 2.974 percent.
 (Reporting by Ka Yan Ng; additional reporting by Julie Haviv
in New York; editing by Peter Galloway)