CANADA FX DEBT-C$ sags as greenback gains after Fed

Wed Jan 27, 2010 4:49pm EST
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 * Ends at C$1.0647 to the US$, or 93.92 U.S. cents
 * Federal Reserve holds rates steady, tone rosier
 * C$ kept lower by broader concerns over growth
 * Bond prices mixed across curve
 (Updates to close, adds quote)
 By Jennifer Kwan
 TORONTO, Jan 27 (Reuters) - The Canadian dollar softened
against the U.S. dollar on Wednesday as the greenback gained
after the U.S. Federal Reserve kept interest rates near zero
and was slightly more optimistic about the U.S. economy.
 The U.S. dollar rose to a six-month high against the euro
after the event. [FRX/] And, while the U.S. central bank said
it would keep interest rates low for some time yet, a
dissenting vote from one official suggested pressure was
building for a tighter monetary policy.
 "The (Federal Open Market Committee) was slightly more
hawkish than some had expected so that helped the U.S. dollar a
little bit," said Camilla Sutton, currency strategist Scotia
Capital. "Generally, we're having a U.S. dollar positive day."
 The Canadian dollar finished at C$1.0647 to the U.S.
dollar, or 93.92 U.S. cents, down slightly from Tuesday's
finish at C$1.0625 to the U.S. dollar, or 94.12 U.S. cents.
 While the policy statement from the Fed was a key factor
influencing markets, Sutton said the Canadian dollar was also
under pressure due to broader concerns about the pace of global
economic growth.
 "I think it's more a story of risk aversion. Overall, the
U.S. dollar has gotten a little bit better bid as risk aversion
has come into the market and there's some fears about global
growth and the impact of tighter policy in China," she said.
 "That's probably the main driver and that's hurting
commodities and the Canadian dollar."
 The price for oil, a key Canadian export, slipped below $74
a barrel [O/R], pressured by rising U.S. inventories due to
soft demand, while gold prices were also weaker. [GOL/]
 Market watchers said the focus would now likely shift to
U.S. President Barack Obama's State of the Union address on
Wednesday evening for comments on the U.S. economic recovery.
 Questions were also overhanging markets about whether Ben
Bernanke would win a second term as chairman of the Federal
 Government bond prices were softer at the front end of the
curve, influenced by the U.S. Treasury market, where debt
prices sagged after one Federal Reserve policymaker dissented
from a decision to leave interest rates near zero. [US/]
 "The biggest thing of note was there was one dissenter.
That hints at a more slightly hawkish tone," said Sutton.
 Earlier, Canadian bonds had drawn a safe haven bid in the
wake of jitters over Greece's fiscal health [ID:nLDE60Q0Y4] and
an unexpected drop in U.S. new home sales. [ID:nCAT005052]
 Earlier in the session, a $42 billion U.S. auction of
five-year notes proved popular with bidders, while in Canada,
an auction of two-year bonds due 2012 was also well received.
[ID:nN27191273] [CA/AUC]
 The two-year bond CA2YT=RR was down 8 Canadian cents at
C$100.07 to yield 1.212 percent, while the 30-year bond
CA30YT=RR climbed 30 Canadian cents to C$117.35 to yield
3.955 percent.
 Canadian bonds outperformed U.S. notes across the curve,
with the Canadian two-year bond 30.5 basis points above the
U.S. 2-year yield, compared with about 36 basis points in the
previous session.
 (Editing by Rob Wilson)