CANADA FX DEBT-C$ hits weakest level since Jan on Fed decision

Wed Sep 21, 2011 3:24pm EDT
 
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   * Canadian dollar at C$1.0031 vs US$, or $0.9969
 * Sinks past parity, weakest since January
 * FOMC embraces further easing, bolstering U.S. dollar
 * Long-dated bond prices surge
 (Updates with Fed announcement, adds comment)
 By Andrea Hopkins
 TORONTO, Sept 21 (Reuters) - The Canadian dollar sank past
parity with its U.S. counterpart to its weakest level since
January on Wednesday after the Federal Reserve ramped up
efforts to aid the beleaguered U.S. economy.
 The Fed embraced further monetary easing by extending the
average maturity of its security holdings, announcing it
intends to buy $400 billion in 6- to 30-year Treasuries by the
end of June 2012. [ID:nS1E78J25W]
 The effort, designed to put more downward pressure on
long-term interest rates and help the battered U.S. housing
sector, boosted the U.S. dollar and catapulted long-dated U.S.
bond prices.
 "The U.S. dollar is a buy on the news, from a safe-haven
perspective. Ironically speaking, when the Fed sees
'significant downside risk' to its economic outlook and chooses
to deliver Operation Twist, even with three dissenters, the
market maintains its position -- as it always does -- to buy
U.S. Treasuries and by extension the U.S. dollar," said Jack
Spitz, managing director of foreign exchange at National Bank
Financial.
 "Risk currencies are all off, even more than they were
before the Fed announcement, led by the New Zealand dollar,
which is down 2 percent. All risk-proxy currencies, whether it
is Canada, Norway, Aussie, Sweden, are all trading down well in
excess of 1 percent against the U.S. dollar today."
 At 3:09 p.m. (1828 GMT), the Canadian dollar CAD=D4 stood
at C$1.0031 to the U.S. dollar, or 99.69 U.S. cents, just off
the session lows of C$1.0038 to the U.S. dollar, or 99.62 U.S.
cents. That was the weakest reading for the Canadian currency
since Jan. 31 and well off Tuesday's North American close of
C$0.9936 to the U.S. dollar, or $1.0064.
 U.S. stocks fell and benchmark Treasury yields dropped to
their lowest in more than 60 years after the Federal Reserve
announced the program. The U.S. dollar rose broadly.
[MKTS/GLOB]
 Earlier in the session, Canadian data showed the annual
inflation rate climbed to a higher than expected 3.1 percent in
August, but analysts this was unlikely to worry the Bank of
Canada, which is more concerned with fiscal problems in Europe
and the United States.
 Market operators had expected the overall rate to rise to
2.9 percent from the 2.7 percent recorded in July.
[ID:nS1E78K04J]
 The Canadian dollar had briefly strengthened as the
inflation report cooled some market speculation that the Bank
of Canada would cut interest rates.
 The Fed announcement boosted long-dated U.S. Treasuries
because the policy means the central bank will sell
shorter-term notes and use those funds to buy longer-dated
bonds.
 Canadian long-term debt prices soared in concert.
 The two-year bond CA2YT=RR was down 3.5 Canadian cents to
yield 0.958 percent, while the 10-year bond CA10YT=RR climbed
32 Canadian cents to yield 2.162 percent.
 (Editing by Rob Wilson)