CANADA FX DEBT-C$ rallies 1 cent as greenback tumbles

Thu Oct 28, 2010 12:18pm EDT
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   * C$ higher at 98.11 U.S. cents
 * Bonds prices drift higher
 (Updates to midday, adds quote)
 By Jennifer Kwan
 TORONTO, Oct 28 (Reuters) - The Canadian dollar rose by a
cent against its U.S. counterpart on Thursday as the greenback
slid amid growing uncertainty about the size of the U.S.
Federal Reserve's monetary easing program, expected next week.
 The U.S. currency surrendered gains from the last two days,
as U.S. Treasury yields fell, making them less attractive, and
easing demand for the dollars to buy them.
 A recent move to trim extreme short dollar positions, amid
speculation the Federal Reserve will announce plans to buy more
assets next week, also slowed. [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 sharply from
Wednesday's close at C$1.0287 to the U.S. dollar, or 97.21 U.S.
cents. At 12:05 p.m. (1605 GMT), it stood at C$1.0193 to the
U.S. dollar, or 98.11 U.S. cents.
 John Clinkard, chief economist at Deutsche Bank Canada,
said the Canadian dollar's move was based on the broader "U.S.
dollar story."
 "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 New York Federal Reserve has surveyed bond dealers and
investors over the size and impact of a quantitative easing
program in the United States, with scenarios ranging from zero
up to $1 trillion, Bloomberg news reported on Thursday, citing
a copy of the survey. [ID:nLDE69R15M]
 A Reuters poll showed Wall Street analysts expect the Fed
to buy between $80 billion and $100 billion worth of assets per
month under a new program widely expected to be unveiled on
Nov. 3. [FED/R]
 "There's going to be massive disappointment if there's no
quantitative easing next week," said Firas Askari, head of
foreign exchange trading at BMO Capital Markets.
 "There will be a significant (U.S.) dollar rally but there
will be carnage in equity markets."
 Askari said he sees the next buying opportunity for the
Canadian dollar at resistance levels of C$1.0344-45 to the U.S.
dollar, close to the 100-day and 200-day moving averages.
 He said near-term support for the greenback lies at
 Canadian government bond prices were flat to higher,
tracking U.S. Treasuries, but the market remained choppy 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 30-year bond CA30YT=RR
gained 7 Canadian cents to yield 3.502 percent.
 (Additional reporting by Claire Sibonney; editing by Rob