CANADA FX DEBT-C$ dips, bonds rise ahead of Bernanke speech

Thu Aug 25, 2011 4:47pm EDT
 
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article
[-] Text [+]

   * C$ ends lower at C$0.9868 to the U.S. dollar, or $1.0134
 * Bond prices rise as risk sentiment fades
 * Market braces for Bernanke's speech on Friday
 * Buffett's Bank of America investment gave an early lift
 (Adds details)
 By Ka Yan Ng
 TORONTO, Aug 25 (Reuters) - The Canadian dollar finished a
shade weaker on Thursday as a broadly advancing U.S. currency
offset gains sparked by an early stock market rally.
 Enthusiasm for equities quickly faded through the morning
as speculation mounted that U.S. Federal Reserve Chairman Ben
Bernanke might not lay out new plans to stimulate the economy
in a much-anticipated speech on Friday.
 "It was strengthening earlier on renewed risk appetite, but
for the most part, I think there are ongoing concerns about the
health of the global economy," said Sal Guatieri, senior
economist at BMO Capital Markets.   
 "We're not expecting much from Bernanke's speech tomorrow,
certainly no clear signal for monetary easing."
 The Canadian currency CAD=D4 ended at C$0.9868 to the
U.S. dollar, or $1.0134, down from C$0.9866 to the U.S. dollar,
or $1.0136, at Wednesday's close.
 The build-up to Bernanke's speech kept the Canadian
currency locked in a tight range this week. But it was jolted
as high as C$0.9791 to the U.S. dollar, or $1.02, its highest
level in more than a week, in early action on Thursday after
Warren Buffett's conglomerate Berkshire Hathaway (BRKa.N: Quote) said
it will invest $5 billion in Bank of America (BAC.N: Quote).
 The move may shore up the company in the same way as
Buffett helped prop up Goldman Sachs (GS.N: Quote) during the
financial crisis.
 While investors were optimistic that Bernanke would signal
in his speech that the Fed is committed to take further
measures if necessary to support the U.S. economy, many doubted
that he would use the speech to launch a third round of
quantitative easing.
 "I'm guessing a lot of people are in for disappointment. I
don't think there will be any major signal into a shift of
policy," said Charles St-Arnaud, Canadian economist and
currency strategist at Nomura Securities International in New
York.
 Investors expect Bernanke to stress that the Fed still has
tools to support the U.S. economy, whose health is critical for
Canada.
 St-Arnaud said the Canadian economy is in a "rough patch"
but should recover enough for the Bank of Canada to raise
interest hike rates, though at a slower pace given the Fed's
pledge to keep its rates low until 2013.
 "With all the uncertainty, the Bank of Canada will probably
be more willing to wait until January before hiking. But the
next move for them is a hike. There are still some rate cuts
priced into the market," St-Arnaud said.
 Canadian government bond prices were flat to higher across
the curve, reflecting the reversal in equity markets and ebbing
hopes of more Fed stimulus.
 Bond yields are expected to edge higher into 2012, but at a
slower pace than previously thought, as fears about global
growth will likely delay interest rate increases by the Bank of
Canada, according to a Reuters poll.
 Economists and fixed income strategists slashed their money
market and bond yield forecasts from July's forecast in the
monthly Reuters poll this week. [ID:nN1E77O0QS]
 The two-year bond CA2YT=RR was unchanged to yield 1.004
percent, while the 10-year bond CA10YT=RR climbed 48 Canadian
cents to yield 2.411 percent.
 (Reporting by Ka Yan Ng; editing by Peter Galloway)