CANADA FX DEBT-C$ firms after Bernanke speaks; NDP rally weighs

Wed Apr 27, 2011 4:57pm EDT
 
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   * C$ finishes higher at $1.0522
 * Fed signals no rush to scale back U.S. economic support
 * US$ slides against many currencies after Bernanke speaks
 * Markets wary as Canada's NDP surges in polls
 * Three-year bond auction meets with solid demand
 (Updates details, adds comments)
 By Solarina Ho
 TORONTO, April 27 (Reuters) - Canada's currency closed
stronger against the U.S. dollar on Wednesday after struggling
for much of the session, helped by the greenback's broadbased
slide after an unprecedented press conference by the head of
U.S. Federal Reserve.
 The U.S. dollar fell against the euro and most other major
currencies on Wednesday after the Fed said it will end its
bond-buying program in June as planned and appeared in no rush
to tighten monetary policy further. [FRX/]
 Fed chairman Ben Bernanke said there was less momentum in
the economy, but said the first quarter slowdown was
"transitory." [ID:nN26291565]
 "If anything, the comments sounded slightly softer on the
economy and there's no reason to think the Fed's moving anytime
soon on interest rates," said Shane Enright, executive
director, foreign exchange sales at CIBC.
 "The market positioning is certainly short-U.S. dollar, not
only against Canada, but across all the currencies right now."
 After waffling weaker for much of the session, the Canadian
dollar CAD=D4 pared losses following the FOMC statement and
finished the session at C$0.9504 the U.S. dollar, or $1.0522,
stronger than Tuesday's North American finish of C$0.9518.
 The U.S. central bank is lagging other countries in
tightening its monetary policy. The European Central Bank and
China have both taken steps to cool their economies and the
Bank of Canada is widely expected to resume raising interest
rates as early as this summer. [CA/POLL]
 Higher interest rates often support currencies because they
tend to attract international capital flows.
 But analysts said the Canadian dollar is still facing the
headwind of uncertainty over the May 2 federal election, with
support for the left-leaning New Democrats unexpectedly
surging. [ID:N29210714]
 Analysts warned big gains for the party could trigger a
knee-jerk drop in the currency and Canadian equity markets as
investors fret about NDP plans to raise corporate taxes, spend
more and redo energy policy. [ID:nN27126329]
 "A little bit of political risk creeping into the currency
... it's certainly caught a few people off guard in terms of a
strong showing, and may have in fact been a bit of a surprise
for some of the offshore investors," said Enright.
 "I certainly don't want to suggest it's causing a mass
exodus of Canadian dollar positions, because I don't think it
is. But I think markets are perhaps, if anything, a little bit
more wary."
 The prospect of an NDP-led minority government is a
negative for the Canadian dollar given the view that the party
is less business friendly and less focused on austerity, said
Camilla Sutton, chief currency strategist at Scotia Capital.
 "It's not something that brings dollar/Canada to C$1.05,
it's something that weighs and has Canada underperform some of
the crosses," she said.
 BONDS FALL, SOLID 3-YEAR BOND AUCTION
 Canadian bond prices were sharply lower, mirroring losses
in U.S. Treasuries that followed the Fed's upward revision to
its inflation forecasts.
 "We've seen a bit of an unwind of the rally yesterday.
Yields have bounced back in Canada and the U.S.," said Kam
Bath, fixed income strategist at RBC Capital Markets.
 The two-year bond CA2YT=RR, was down 7.5 Canadian cents
to yield 1.779 percent, while the 10-year bond CA10YT=RR lost
63 Canadian cents to yield 3.267 percent.
 Canadian bonds mostly underperformed their U.S. peers, with
the 10-year Canadian bond yield 8.4 basis points below its U.S.
counterpart, compared with 12 basis points on Tuesday.
 Canada's sale of three-year government bonds on Wednesday
met with solid demand.
 "It was a decent auction, considering the situation --
coming half an hour before the FOMC," said Bath.