CANADA FX DEBT-C$ firms to 1-week high; monetary policy in focus

Thu Oct 17, 2013 10:13am EDT
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* C$ at C$1.0304 vs US$, or 97.05 U.S. cents
    * Canadian bond prices higher across the maturity curve

    By Leah Schnurr
    TORONTO, Oct 17 (Reuters) - The Canadian dollar strengthened
to hit a more than one-week high on Thursday, with investors
dumping the greenback on expectations that the fallout from the
U.S. government shutdown will see the Federal Reserve keep its
economic stimulus in place. 
    U.S. lawmakers came to a last-minute agreement on Wednesday
night that ended a partial shutdown that started at the
beginning of the month and raised the debt ceiling, avoiding a
potential default. Still, the deal is only a temporary solution
and raises the possibility of another budget impasse in the new
    Investors were assessing how much of a bite the shutdown may
have taken out of U.S. economic growth. Canada's fortunes are
closely tied to its neighbor south of the border, which is its
largest trading partner.
    Weaker growth prospects could mean the Fed will have to
maintain the pace of its $85 billion a month in asset purchases
longer than had been anticipated.
    "Everyone is starting to believe that due to inefficient
economic growth, tapering will not be on the table any time
soon," said Dean Popplewell, chief currency strategist at OANDA.
    The Canadian dollar was at C$1.0304 versus the U.S.
dollar, or 97.05 U.S. cents, stronger than Wednesday's close of
C$1.0334, or 96.77 U.S. cents. The loonie touched a session high
of C$1.0291.
    The greenback tumbled 0.9 percent against a basket of
currencies. Expectations of a delay in reducing the Fed's
monetary policy tends to weigh on the dollar, partly because it
pushes expectations of an eventual interest rate increase out
    The release of a backlog of U.S. data that was postponed by
the shutdown - including September's jobs report - will be key
to assessing the Fed's likely path.
    Investors were also digesting a promise from the Canadian
government that it will introduce legislation that will require
balanced budgets except during economic crises, as well as a
renewed pledge to balance its books by 2015. 
    "(That) certainly gives Canada some extra love out there,"
said Popplewell of the currency.
    Government bond prices were higher across the maturity
curve. The two-year bond rose 3.5 Canadian cents to
yield 1.198 percent, while the benchmark 10-year bond
 gained 24 Canadian cents to yield 2.585 percent.