CANADA FX DEBT-C$ hits weakest since December after Fed decision

Wed Sep 21, 2011 4:52pm EDT
 
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   * Canadian dollar ends at C$1.0059 vs US$, or $0.9941
 * Sinks past parity, weakest since December 2010
 * FOMC embraces further easing, but warns on outlook
 * Bond prices surge, Canada 30-yr yield lowest in decades
 (Updates to session close)
 By Andrea Hopkins
 TORONTO, Sept 21 (Reuters) - The Canadian dollar sank past
parity with its U.S. counterpart to touch its weakest level
since December 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 move is designed to put more downward pressure on
long-term interest rates and help the battered U.S. housing
sector. But investors focused on the Fed's warning that "there
are significant downside risks to the economic outlook."
 "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," 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."
 The Canadian dollar CAD=D4 ended the North American
session at C$1.0059 to the U.S. dollar, or 99.41 U.S. cents. It
hit low of C$1.0083 to the U.S. dollar, or 99.18 U.S. cents.
That was the weakest reading for the Canadian currency since
December 2010 and well off Tuesday's North American close of
C$0.9936 to the U.S. dollar, or $1.0064.
 Financial markets registered a big jump in risk aversion
after the Fed announcement, as U.S. stocks slid and benchmark
Treasury yields hit a more than 60-year low.
 The U.S. dollar rose broadly, reversing losses against the
euro. [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. [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 Canadian government bond CA2YT=RR was down
0.5 Canadian cent to yield 0.944 percent, while the 10-year
bond CA10YT=RR climbed 44 Canadian cents to yield 2.149
percent.
 The yield on the 30-year bond sank to 2.771 percent, a low
not reached in records going back to the 1970s.
 (Editing by Jeffrey Hodgson)