CANADA FX DEBT-C$ pares gains after Fed statement

Wed Jan 28, 2009 3:41pm EST
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By Frank Pingue

TORONTO Jan 28 (Reuters) - The Canadian dollar fell from a two-week high it touched on Wednesday after the Federal Reserve said it was prepared to keep using unconventional tools to help the economy from deteriorating further.

"The (U.S.) dollar basically just turned on its tail and obviously the FOMC meeting sparked that," said David Watt, senior currency strategist at RBC Capital Markets.

"You basically had the Fed indicating that they will do everything they can to keep rates at zero for a long time ... and do everything they can to spark an economic rebound."

The Canadian unit traded at C$1.2215 to the U.S. dollar, or 81.87 U.S. cents, down from its session high of C$1.2025 to the U.S. dollar, or 83.16 U.S. cents.

Still, the Canadian dollar held above the C$1.2263 to the U.S. dollar, or 81.55 U.S. cents, level that it finished at on Tuesday.

A statement that followed the Fed's two-day meeting showed the central bank felt interest rates could remain unusually low for some time and that it would be prepared to buy long-term government debt if that would help improve financial markets.

The Canadian dollar had been sitting comfortably higher ahead of the Fed statement after Canada's opposition Liberals announced a widely expected decision to support the federal budget and prevent the fall of the ruling Conservatives. (Reporting by Frank Pingue; Editing by Jeffrey Hodgson)