CANADA FX DEBT-C$ firms but market focus stays on Fed policy

Mon Dec 9, 2013 4:46pm EST
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* Canadian dollar at C$1.0635 or 94.03 U.S. cents
    * Bond prices up across the maturity curve

    By Leah Schnurr
    TORONTO, Dec 9 (Reuters) - The Canadian dollar firmed
against the greenback on Monday, recovering some ground after
its recent rout, but it was seen as unlikely to make any big
moves until investors get more clarity on the path of monetary
policy in the United States.
    The loonie touched a 3-1/2-year low last week, undermined by
 a number of bearish factors, including a more dovish Bank of
Canada, weaker oil prices and uncertainty about when the U.S.
Federal Reserve will start winding down its bond-buying program.
    While the Canadian dollar got a reprieve on Monday as
investors consolidated positions, the market will lack catalysts
until next week's meeting of Fed policymakers.
    "We're going to have a hard time this week really making any
large, sustained moves," said Scott Smith, senior market analyst
at Cambridge Mercantile Group in Calgary.
    That should leave the Canadian dollar trading between C$1.06
and C$1.07, Smith said. The currency traded as weak as C$1.0708
last week, its lowest level since May 2010.
    The Canadian dollar ended the North American
session at C$1.0635 to the greenback, or 94.03 U.S. cents,
stronger than Friday's close of C$1.0656, or 93.84 U.S. cents.
    Last week's better-than-expected jobs data in the United
States has supported expectations the Fed could start tapering
its stimulative bond-buying program sooner rather than later. 
    "I still think the Federal Reserve is going to want a couple
more employment reports like that before they do taper (but)
there definitely is a risk we do see a small, token taper in
December," Smith said. 
    A Reuters poll showed economists expect the Fed to start
reducing its quantitative easing program in March, though some
are warming up to the idea that the central bank will do so as
early as this month or in January. 
    A faster timetable for the Fed to reduce its $85 billion a
month in bond purchases is seen as bearish for the Canadian
dollar as the move is expected to reduce risk appetite and
benefit the U.S. currency.
    On the domestic front on Monday, data showed new
homebuilding in Canada slowed slightly in November, though the
loonie had little reaction to the data. 
    Canadian government bond prices rose across the maturity
curve, with the two-year up 2.3 Canadian cents to
yield 1.083 percent and the benchmark 10-year up 16
Canadian cents to yield 2.670 percent.