CANADA FX DEBT-C$ benefits from greenback's slide
* C$ ends at 97.90 U.S. cents
* Bond prices rise, track U.S. Treasuries
* Market eyes GDP data on Friday, Fed next week (Updates to close, adds quote)
By Jennifer Kwan
TORONTO, Oct 28 (Reuters) - The Canadian dollar finished higher for the first time in three sessions on Thursday as the greenback slid on growing uncertainty about the size of any monetary easing program from the U.S. Federal Reserve.
The U.S. currency fell in tandem with Treasury yields as investors reassessed their estimates of how much money the Federal Reserve was likely to commit to a second round of monetary stimulus -- widely dubbed "QE2" -- when it meets next week. [FRX/]
The Canadian dollar CAD=D4 touched a high of C$1.0181 to the U.S. dollar, or 98.22 U.S. cents, up a U.S. cent from Wednesday's close at C$1.0287 to the U.S. dollar, or 97.21 U.S. cents. It ended Thursday up at C$1.0215 to the U.S. dollar, or 97.90 U.S. cents.
John Curran, senior vice president at CanadianForex, a commercial foreign exchange dealing firm, said the market is trapped in a "wait and see" mode ahead of the Federal Open Market Committee meeting next week.
"We're basically waiting to see the size of QE2, how they plan on rolling out QE2," said Curran, noting the Canadian dollar has largely been trading in a range of C$1.0180 to C$1.0340 to the U.S. dollar.
"If we don't get a lot of information on QE2 it may be a risk-off scenario. It would be get out of risk -- the U.S. dollar would go up, all the other currencies would go down. Get out of equities, get out of certain commodities."
The New York Federal Reserve has surveyed bond dealers and investors on their opinion on the impact of any quantitative easing program, with the market replying with scenarios for programs ranging from zero up to $1 trillion. [ID:nLDE69R15M] [FED/R]
The Canadian dollar's move was based on the broader "U.S. dollar story," said John Clinkard, chief economist at Deutsche Bank Canada.
"We're looking at the potential risk of inflation in the U.S. and that is something that investors are concerned about," he said. "When you debase a currency you're basically increasing the supply of money, and that is creating an inflationary threat."
The weak U.S. dollar helped to lift commodity prices, which are typically priced in U.S. dollars. Oil, a key Canadian export, climbed above $82 a barrel, while gold and base metals prices were also firmer. [O/R] [GOL/] [MET/L]
Curran said market watchers would be eyeing economic growth data on both sides of the border early on Friday. Canada will report August GDP, and in the United States it's third quarter. [ECON/CA] [ECON/US]
"If things come in line with what we're expecting tomorrow I would look for the risk-on scenario to be valid and the Canadian dollar may appreciate a little bit," Curran said.
Canadian government bond prices were flat to higher, tracking U.S. Treasuries, but the market remained uneasy as investors recalibrated U.S. easing expectations. [US/]
The two-year bond CA2YT=RR edged 4 Canadian cents higher to yield 1.439 percent, while the 10-year bond CA10YT=RR gained 16 Canadian cents to yield 2.875 percent.
Canadian bonds notched a mixed performance across the curve. The Canadian two-year bond CA2YT=RR was 107 basis points above the U.S. two-year yield, compared with about 104 basis points above on Wednesday. (Reporting by Jennifer Kwan; editing by Peter Galloway)
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