CANADA FX DEBT-C$ falls as Fed stimulus doubt lifts US$

Wed Oct 27, 2010 4:34pm EDT
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   * C$ ends at 97.21 U.S. cents
 * U.S. dollar strength key driver behind C$ drop
 * Bond prices soften across curve
 (Updates to close, adds quote)
 By Jennifer Kwan
 TORONTO, Oct 27 (Reuters) - Canada's dollar retreated
against the U.S. currency on Wednesday as the greenback rose
broadly on speculation the U.S. Federal Reserve would take a
measured approach to quantitative easing.
 The U.S. dollar's rise pushed it into positive territory
against major currencies for the year as investors continued to
unwind bets against the greenback before a highly anticipated
Federal Reserve meeting next week. [FRX/]
 Doubts over how aggressively the Fed is going to be with
another round of asset-buying to stimulate a faltering recovery
also weighed on global equities and commodities. [MKTS/GLOB]
 "It comes down to the U.S. dollar, and the U.S. dollar
strength or weakness is simply a barometer of the market's
assumption around quantitative easing at the next Fed meeting,"
said Jack Spitz, managing director of foreign exchange at
National Bank Financial.
 "The current market position is to be short U.S. dollars
and the U.S. dollar's gains over the past few days have
reflected a pulling back of risk," he said.
 The Canadian dollar CAD=D4 ended at C$1.0287 to the U.S.
dollar, or 97.21 U.S. cents, down from Tuesday's finish at
C$1.0242 to the U.S. dollar, or 97.64 U.S. cents.
 The U.S. central bank has aired several times that it will
attempt to boost growth by pumping more money into the economy
through government bond purchases, commonly referred
to as quantitative easing. That has pushed the dollar and U.S.
bond yields lower.
 But the greenback reversed course this week on uncertainty
about how much the Fed will spend and whether the new measures
will be carried out swiftly or phased in over time.
 The Wall Street Journal reported on Wednesday that the Fed
is likely to unveil an asset purchase program next week worth a
few hundred billion dollars over several months, and that
officials wanted to avoid a "shock and awe" style approach.
 "As the market scales back its expectations on QE
(quantitative easing), it scales back its short dollar
positions," said Spitz.
 Canadian government bond prices softened, tracking U.S.
Treasuries lower as traders trimmed bets on the size of
possible asset buying by the Fed. [US/]
 "The move is generally in line with what we saw in the
U.S.," said Kam Bath, fixed income strategist at RBC Capital
 "It's people paring down their expectations of Fed stimulus
next week," he added. "That would explain the underperformance
at the belly of the curve because that's where expectations
for Fed purchases were largely concentrated."
 The two-year bond CA2YT=RR fell 5 Canadian cents to yield
1.451 percent, while the 10-year bond CA10YT=RR was off 58
Canadian cents to yield 2.884 percent.
 (Additional reporting by Claire Sibonney; editing by Rob