CANADA FX DEBT-C$ touches 4-1/2-year low as emerging markets steady
* Canadian dollar at C$1.1156 or 89.64 U.S. cents * Bond prices higher across the maturity curve By Leah Schnurr TORONTO, Jan 28 (Reuters) - The Canadian dollar touched a 4-1/2-year low against the greenback on Tuesday as a stabilization in emerging markets drew investors' focus back to the loonie's weak outlook. Markets were also positioning ahead of the Federal Reserve's policy decision at the close of its two-day meeting on Wednesday, with expectations the U.S. central bank will announce a further reduction in its bond-buying. A faster timeline for unwinding the Fed's economic stimulus program is seen supporting the U.S. dollar, to the detriment of the loonie. A policy shift from the Bank of Canada late last year has weighed on the loonie in recent months and has fueled market expectations that interest rates will stay low for some time. Selling intensified last week after the central bank left the door open to a rate cut. Recent comments from the central bank that the Canadian dollar was still strong and that its strength still posed an obstacle to exports have added pressure to the currency. The Canadian dollar got a respite late last week after a sell-off in emerging markets gave the loonie some safe-haven appeal. But as those markets steadied on Wednesday, the Canadian dollar was out of favor again. "The overall Canadian dollar story is still very much favoring the bearish side," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto. "All in all, what we're seeing is a retracement of the risk aversion move, so as we've had the prospects for the emerging markets stabilize a little bit, what it also does is it then in turn allows the Canadian dollar to go back to where it was." An unexpected drop in durable goods orders in December south of the border also weighed on the Canadian dollar, Sutton said. Analysts are looking for a pickup in the U.S. economic recovery this year to eventually lend some strength to Canada's economy. The Canadian dollar ended the North American session at C$1.1156 to the greenback, or 89.64 U.S. cents, weaker than Monday's close of C$1.1112, or 89.99 U.S. cents. The loonie touched a session low of C$1.1177, its lowest level since July 2009. Markets expect the Fed at this week's meeting to trim another $10 billion a month from its bond-buying program, which would leave its monthly purchases at $65 billion a month. With that expectation already priced in, investors could choose to "sell the fact" after the Fed announcement, said Tony Valente, senior FX dealer for global treasury solutions at AscendantFX in Toronto. "I can't see the U.S. dollar getting too much stronger on that move because everyone is expecting them to taper," Valente said. Canadian government bond prices were higher across the maturity curve, with the two-year up 2-1/2 Canadian cents to yield 0.970 percent and the benchmark 10-year up 8 Canadian cents to yield 2.417 percent.
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