CANADA FX DEBT-C$ weakens after Fed decides to cut stimulus further

Wed Jan 29, 2014 4:47pm EST
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* Canadian dollar at C$1.1178, or 89.46 U.S. cents
    * Bond prices higher across the maturity curve

    By Leah Schnurr
    TORONTO, Jan 29 (Reuters) - The Canadian dollar weakened to
near four-year lows against the greenback on Wednesday after the
U.S. Federal Reserve announced it would further scale back its
economic stimulus program.
    The U.S. central bank said it will reduce its monthly bond
purchases by another $10 billion. While the move was largely
expected, it came against the backdrop of a recent selloff in
emerging markets that was fueled in part by worries that less
bond-buying by the Fed will reduce the liquidity that has
boosted emerging market assets. 
    A faster timetable for the Fed to wind down its quantitative
easing, or "QE", program has typically been bearish for the
loonie as it boosts the U.S. dollar. But the Canadian currency
was also buffeted on Wednesday by heightened risk-aversion
around the world related to emerging-market concerns.
    "With the ready access to cheap and easy liquidity,
investors were taking those funds and allocating into their
emerging markets funds, where, yes, it's high risk but certainly
the high reward was there," said Gareth Sylvester, director at
Klarity FX in San Francisco.
    "Now you're starting to see the spigot that is QE is being
tapered, then certainly we're seeing investors pull back out of
those emerging markets."
    The volatility in global markets in recent days has also
been brought on by a combination of country-specific problems.
Aggressive interest rate hikes by Turkey and South Africa failed
to prop up their markets. 
    The Canadian dollar ended the North American
session at C$1.1178 to the greenback, or 89.46 U.S. cents,
weaker than Tuesday's close of C$1.1156, or 89.64 U.S. cents. 
    With the Fed announcement out of the way, investor attention
will start to turn toward Friday's Canadian monthly gross
domestic product report, the only piece of domestic economic
data on the calendar for the week.
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 1 Canadian cent
to yield 0.964 percent and the benchmark 10-year up
40 Canadian cents to yield 2.371 percent.