CANADA FX DEBT-C$ jumps as Fed opens door to more stimulus

Tue Sep 21, 2010 4:51pm EDT
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   * C$ hits day's high and low after Fed statement
 * Ends higher at 97.39 U.S. cents
 * Bonds follow U.S. Treasuries higher
 (Updates to close)
 By Ka Yan Ng
 TORONTO, Sept 21 (Reuters) - The Canadian dollar hit its
highest and lowest points of the session against the U.S.
currency on Tuesday after the U.S. Federal Reserve said it
stood ready to help the economy if needed.
 The Fed, which made no shift in monetary policy at the end
of its one-day meeting, as expected, said it was prepared to
provide additional support to bolster a U.S. modest economic
recovery. [ID:nN20109053]
 The currency  CAD=D3 briefly dropped to C$1.0332 to the
U.S. dollar, or 96.79 U.S. cents, then turned convincingly
higher as investors exited the greenback, while U.S. stock
indexes turned positive for a bit. Canada's dollar jumped as
high as C$1.0217 to the U.S. dollar, or 97.88 U.S. cents.
 It pared gains to end the session at C$1.0268 to the U.S.
dollar, or 97.39 U.S. cents, up from Monday's close at
C$1.0293, or 97.15 U.S. cents.
 "The market is diversifying away from the U.S. dollar as
far as a safety holding, and we saw immediate evidence of that
with the way that the Dow shot up and interest for the other
currencies took place," said said C.J. Gavsie, managing
director of foreign exchange sales at BMO Capital Markets.
 Gavsie said a close below C$1.0185 to the U.S. dollar could
indicate a new opportunity for a run towards parity with the
greenback, but "until we see that, we're not incredibly
convinced that we're breaking out of the range just yet."
 Earlier, data showed Canada's annual inflation rate slowed
in August, suggesting the Bank of Canada may suspend its
rate-hiking campaign.
 The overall inflation rate eased to 1.7 percent last month
from 1.8 percent in July. Analysts surveyed by Reuters had
expected a slightly higher annual rate of 1.9 percent. The core
rate was 1.6 percent in August, unchanged from July.
 The tame inflation figures mean third-quarter inflation,
calculated on a annual basis, would likely be slightly lower
than the Bank of Canada's July forecast of 1.8 percent,
analysts said.
 This could give the central bank more reason to pause after
raising its benchmark interest rate three times since the start
of June. The overnight rate currently stands at 1 percent.
 "We still think (the Bank of Canada is) going to pass in
October and pass again in December. Realistically, it's not
really an inflation story, it's more a growth story and a U.S.
growth story as well," said Mark Chandler, head of Canadian
fixed income and currency strategy at RBC Capital Markets.
 Market pricing, as measured by a Reuters calculation of
yield on overnight index swaps, remained steady and indicated
about a 64 percent likelihood of no change in interest rates at
the Bank of Canada's policy-decision date next month.
 Government bonds were initially mixed after the Fed
statement, but climbed across the curve to mirror gains in U.S.
Treasuries as the U.S. central bank expressed somewhat greater
concern about the sluggish pace of economic growth.
 The Fed also opened the door wider to pumping more money
into the economy as well as noting that it saw subdued
inflation for "some time."
 The two-year bond was up 10 Canadian cents to yield 1.460
percent, while the 10-year bond gained 35 Canadian cents to
yield 2.903 percent. They put in a mixed performance against
U.S. Treasuries, with the short-dated issues outperforming and
mid- to long- maturities underperforming.
 (Reporting by Ka Yan Ng; editing by Rob Wilson)