CANADA FX DEBT-C$, bonds firm in light trade with eyes on Fed

Tue Apr 26, 2011 5:15pm EDT
 
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   * C$ firms to $1.0506
 * Bonds mostly firmer ahead of Fed view
 By Solarina Ho
 TORONTO, April 26 (Reuters) - The Canadian dollar edged
higher against its struggling U.S. counterpart in quiet trading
on Tuesday, with traders focused on Wednesday's appearance by
U.S. Federal Reserve Chairman Ben Bernanke.
 The U.S. dollar was weighed down by expectations the
central bank will be reluctant to tighten monetary policy.
Investors are also keen to parse Bernanke's comments after the
Federal Open Market Committee concludes its meeting on
Wednesday. [ID:nN1941922] [FRX/]
 "The market's really just waiting for the FOMC tomorrow, to
see if there's any new news out there," said David Bradley,
director of foreign exchange trading at Scotia Capital, noting
that other currencies have been quiet as well.
 "If it's more hawkish, it'll just give the Bank of Canada
more leeway in raising rates up here as well. I don't think
it's going to be negative for the currency."
 Bradley added that traders were still mostly long the
Canadian dollar.
 The Fed appears set to reaffirm its plan complete its $600
billion bond-buying program in June, with no rush to exit amid
a backdrop of weak housing markets, softer-than-expected
economic data and possible austerity measures to tackle the
budget deficit.
 The Bank of Canada, meanwhile, is expected to hike its key
policy rate from its current 1 percent level sometime this
year. Most primary dealers expect the first move of the year to
fall in July. [CA/POLL]
 Canada's higher interest rates have helped attract
international capital flows and boosted the Canadian dollar.
 The currency CAD=D4 finished the session at C$0.9518 to
the U.S. dollar, or $1.0506, stronger than Monday's North
American finish of C$0.9546, or $1.0476.
 The commodity-linked currency shifted within a tight range
along with movements in riskier assets like gold and oil, a key
Canadian export. Crude prices edged higher in volatile trading,
while bullion slipped ahead of the outcome of the FOMC.
 Also attracting some attention was news of the left-leaning
New Democratic Party's move into second place in polls ahead of
a federal election. [ID:nN26285152]
 The party's surge in popularity has yet to dissuade
Canadian dollar bulls, said RBC Capital Market's David Watt, a
senior fixed income and currency strategist.
 But Watt added that if the trend holds, "what-if scenarios
will get increasing attention, ahead of, and potentially after
election day."
 Canadian bond prices were mostly firmer ahead of Bernanke's
news conference, mirroring moves in U.S. Treasuries. [US/]
 The two-year bond CA2YT=RR was up 7.5 Canadian cents to
yield 1.737 percent, while the 10-year bond CA10YT=RR added
37 Canadian cents to yield 3.194 percent.
 (Editing by Jeffrey Hodgson)