CANADA FX DEBT-C$ stumbles as greenback gains broadly

Tue Oct 26, 2010 4:58pm EDT
 
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 * C$ ends at 97.64 U.S. cents
 * Bond prices lower across curve
 * Bank of Canada repeats caution over future rate hikes
 (Updates to close, adds quote)
 By Jennifer Kwan
 TORONTO, Oct 26 (Reuters) - The Canadian dollar slouched as
the greenback rallied back from recent losses on Tuesday, with
the U.S. currency benefiting from uncertainty about how far the
U.S. Federal Reserve will go to ease monetary policy next
week.
 Moves in the Canadian dollar were largely driven by
strength in the U.S. currency, which rose as the euro failed to
hold above the $1.400 level, leaving investors wary of betting
against the greenback before U.S. gross domestic product
figures are released on Friday and ahead of meetings of the
U.S. Fed's Federal Open Market Committee (FOMC) next week.
[FRX/]
 "The market is trying to push the euro/dollar through $1.41
and didn't succeed. Now, ahead of the GDP on Friday -- in the
U.S. specifically -- and the FOMC next week, we're seeing a bit
of profit-taking after the huge sell-off in the U.S. dollar,"
said Matthew Strauss, senior currency strategist at RBC Capital
Market.
 He pointed to uncertainty around the magnitude of easing
that might be undertaken by the Fed. The market expects the Fed
to loosen monetary policy through quantitative easing, or
printing money to buy assets. [FRX/] [MKTS/GLOB]
 "In the U.S., it's not a question of whether they would
announce quantitative easing, but rather the magnitude of the
announcement. It seems increasingly likely that they would go
for a piecemeal approach," Strauss said.
 The Canadian dollar CAD=D4 finished at C$1.0242 to the
U.S. dollar, or 97.64 U.S. cents, down from Monday's close of
C$1.0203 to the U.S. dollar, or 98.01 U.S. cents.
 Also in focus was testimony by the Bank of Canada Governor
Mark Carney and Senior Deputy Governor Tiff Macklem, both
speaking to a parliamentary committee on Tuesday afternoon.
 The Bank of Canada's opening statement was "basically a
rehash of the MPR (Monetary Policy Report)," said David Tulk,
senior macro strategist at TD Securities.
 The bank issued its MPR last week, and Tuesday's statement
repeated that it would would have to carefully consider any
further rate hikes, given the uneven global recovery, a weak
U.S. outlook and expected curbs on Canadian growth.
[ID:N26152874] For highlights of the testimony, please see:
[ID:nN26159745]
 Analysts said it was unlikely the central bank would offer
fresh insight on monetary policy after announcing last week it
would hold rates steady at 1.0 percent.
 BONDS LOWER
 Canadian government bonds prices were lower across the
curve, tracking moves in U.S. Treasuries, which were hit by new
debt supply. [US/]
 Market observers said the market was also positioning ahead
of the Fed meeting next week at which the central bank is
expected to say it will buy sizable amounts of assets to try to
revive economic growth.
 "It's being dragged along with the United States and this
is positioning ahead of quantitative easing in that the markets
got ahead of themselves," said David Tulk, senior macro
strategist at TD Securities.
 "Markets do overshoot so they're taking back some of the
gains seen previously."
 The two-year bond CA2YT=RR fell 9 Canadian cents to yield
1.432 percent, while the 10-year bond CA10YT=RR was off 62
Canadian cents to yield 2.817 percent.
 (Editing by Peter Galloway)