REFILE-CANADA FX DEBT-C$ drifts higher with Fed in focus
(Fixes typo in strategist's name in 10th paragraph)
* C$ rises to $1.0039
* Bond prices drift lower across curve
By Claire Sibonney
TORONTO, Jan 26 (Reuters) - The Canadian dollar firmed against its U.S. counterpart on Wednesday, benefiting alongside other riskier assets after a promise of spending cuts from U.S. President Barack Obama cemented expectations the Fed will maintain its ultra-loose monetary policy.
Obama's State of the Union speech late on Tuesday, which also signaled corporate tax cuts, came ahead of the U.S. central bank's latest policy decision, due around 2:15 p.m. (1915 GMT). [ID:nN2539641]
In the aftermath of the speech, world stocks and commodity prices rallied, while the U.S. dollar weakened broadly as investors expected the Fed to sound optimistic even as it reaffirms its plan to buy $600 billion in government debt. [MKTS/GLOB] [FEDAHEAD]
"Seeing there's a bit more risk sentiment generally today that's probably driving the Canadian dollar," said Charles St-Arnaud, Canadian economist and currency strategist at Nomura Securities International in New York.
"Canada will benefit because fundamentals in Canada are slightly better, especially on the fiscal side."
He added that a perceived stabilization of sovereign debt concerns in Europe is also contributing to a more positive global economic outlook. "Investors are a bit more willing to take risk, so that brings slightly higher commodity price ... and that obviously is pushing the Canadian dollar higher."
With no Canadian data out for the rest of the week, investors will take their cues from south of the border, which include new U.S. home sales data, with the health of the housing market is seen as key to the U.S. economic recovery.
At 8 a.m. (1300 GMT), the currency CAD=D4 was worth C$0.9961 to the U.S. dollar, or $1.0039, slightly stronger than Tuesday's North American close at C$0.9976 to the U.S. dollar, or $1.0024.
Still hovering around parity against the greenback, the currency's gains will be held in check by a cautious Bank of Canada, said St-Arnaud.
"With comments from the Bank of Canada last week that our persistently strong Canadian dollar and weak competitiveness have been affecting the economy ... we can see the Canadian dollar appreciate but not by a lot over the next few months.
Canadian government bond prices declined across the curve, tracking U.S. Treasuries, as they handed back some gains from a rally the previous day. The two-year bond CA2YT=RR was off 3 Canadian cents to yield 1.699 percent, while the 10-year bond CA10YT=RR slipped 18 Canadian cents to yield 3.303 percent.
(Reporting by Claire Sibonney, Editing by Chizu Nomiyama)
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