CANADA FX DEBT-C$ firms as markets await Fed statement

Wed Sep 17, 2014 10:08am EDT
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* Canadian dollar at C$1.0961 or 91.23 U.S. cents
    * Bond prices higher across the maturity curve

    By Leah Schnurr
    TORONTO, Sept 17 (Reuters) - The Canadian dollar firmed
against the greenback for a third day on Wednesday but gains
were limited by investor caution ahead of a policy statement by
the U.S. Federal Reserve later in the day.
    Market speculation has been rife over whether the U.S.
central bank will change its language on how long it will hold
interest rates at ultra-low levels. 
    Expectations that the statement will be a bit more hawkish
sparked a nearly 2 percent selloff in the loonie last week, but
the market was more cautious on Wednesday.
    The Fed will issue its statement at 2 p.m. EDT (1800 GMT),
at the conclusion of a two-day policy-setting meeting, along
with new economic and rate projections. A press conference by
Fed Chair Janet Yellen will follow at 2:30 p.m.
    In previous statements, the Fed has said it will keep rates
low for a "considerable time" after its bond-buying program
ends. That is likely to happen in October.
    "There are a lot of different elements to digest," said Greg
Moore, senior currency strategist at Royal Bank of Canada in
Toronto. "It seems that there's been quite a lot of focus on how
the forward guidance will be adjusted, particularly whether
they'll maintain that 'considerable time' phrase or not." 
    "That essentially leaves us completely at the whim of what
is going on with the U.S. dollar." 
    The Canadian dollar was at C$1.0961 to the
greenback, or 91.23 U.S. cents, stronger than Tuesday's close of
C$1.0970, or 91.16 U.S. cents.
    The loonie has seen some volatile trading in recent
sessions. It broke through key technical resistance at C$1.10
last week, only to break back below that level on Tuesday.
    With a number of potentially market-moving events still to
come, including Scotland's referendum on independence from the
United Kingdom and Canadian inflation data, the currency will
likely remain choppy through the rest of the week, Moore said.
    Still, the longer-term forecast is for the loonie to weaken,
likely hitting C$1.15 by the end of the year, Moore said.
    "We do expect the stronger U.S. dollar-Canadian dollar trend
to reassert itself a little bit more clearly in the fourth
quarter, as some of the bigger driving themes start to unfold,"
particularly the divergence between the Fed and Bank of Canada,
he said.
    Canadian government bond prices were higher across the
maturity curve, with the two-year up half a Canadian
cent to yield 1.146 percent and the benchmark 10-year
 up 11 Canadian cents to yield 2.230 percent.

 (Editing by Peter Galloway)