TORONTO (Reuters) - The Canadian dollar was little changed against its U.S. counterpart, but rose versus most other major currencies on Tuesday after the U.S. Federal Reserve signaled it was less eager to launch additional monetary stimulus measures.
Minutes released from the Fed’s March policy meeting suggested the appetite for another dose of stimulus via quantitative easing, so-called QE3, has eased as the U.S. economic recovery gains momentum.
Market watchers were caught off guard by the Fed’s change in tone from late January when the central bank said it would keep interest rates near zero until at least late 2014. Many investors had believed more easing was likely.
“What you saw today was a major repricing in terms of (U.S.) dollar versus all the other crosses,” said Stewart Hall, senior currency strategist at Royal Bank of Canada. “But if you look at the Canadian dollar we’re just slightly changed.”
The Canadian dollar ended the North American session at C$0.9904 against the U.S. dollar, or $1.0097, nearly unchanged from Monday’s close at C$0.9903 versus the greenback, or $1.0098.
Canada did outperform most other major currencies, rising against the yen, euro, sterling, Swiss franc and Mexican peso.
The improving American economy has helped boost the Canadian currency this year, particularly as event risks in Europe have subsided. The United States is the biggest destination for Canadian exports.
“There is a very strong connection between what’s going on in the U.S. and arguably how Canada evolves economically and in terms of (monetary) policy,” said Hall.
The Canadian dollar gained sharply on Monday after Bank of Canada Governor Mark Carney said the Canadian economy is doing better than expected and the threat from the European debt crisis has lessened.
The central banker also warned that businesses should not rely on the Canadian dollar depreciating in value against the U.S. currency to make exports more competitive
Carney’s comments prompted some traders to price in higher odds that the central bank will hike its key lending rate by the end of the year.
But the median forecast in a recent Reuters poll of primary dealers shows they expect the first hike in the third quarter of 2013. <CA/POLL>
Canadian government bond prices were lower across the curve on Tuesday, mimicking the drop in U.S. Treasuries that followed the Fed minutes. But Canadian bonds outperformed their U.S. peers. <US/>
Canada’s 2-year bond dipped 10 Canadian cents to yield 1.258 percent, while the 10-year bond slipped 60 Canadian cents to yield 2.194 percent.
Editing by Jeffrey Hodgson