November 1, 2010 / 9:20 PM / 10 years ago

CANADA FX DEBT-C$ hits 2-week high ahead of Fed, U.S. elections

   * C$ firms to 98.42 U.S cents
 * Gets early lift from Chinese data, commodity rise
 * Central banks, U.S. elections, data jockey for attention
 * Ottawa to rule on BHP's bid for Potash Corp this week
 (Updates to close)
 By Claire Sibonney
 TORONTO, Nov 1 (Reuters) - Canada's dollar firmed to a
two-week high against its U.S. counterpart on Monday, helped by
firm Chinese data, but investors were mostly focused on the
U.S. Federal Reserve's plans to provide more monetary
 The Fed is likely to announce on Wednesday a fresh round of
quantitative easing, under which the U.S. central bank would
create new dollars and use them to buy bonds in a bid to
revitalize the economy.
 "There are some doubts about the size of the QE program,
which recently was supporting the U.S. dollar but nonetheless
the Fed is poised to restart the printing press, and crank out
more greenbacks, which is always a plus for the other
currency," said Sal Guatieri, senior economist at BMO Capital
 Most economists expect the Fed to buy $80 billion to $100
billion in assets per month, according to a Reuters poll.
Estimates of total purchases ranged from $250 billion to $2
trillion. [ID:nNLLRLE6LL]
 Canada's dollar received an early lift from data showing
China's factories ramped up production last month, buoyed by an
influx of new business, highlighting the strength of the
world's second-largest economy. [ID:nTOE6A001P]
 The currency eventually rose as high as C$1.0126 to the
U.S. dollar, or 98.75 U.S. cents, as both commodity and equity
markets rallied. But it pared gains as stocks slipped into
negative territory.
 Analysts said many investors were reluctant to make big
bets ahead of the Fed meeting, as well as U.S. midterm
elections on Tuesday.
 "We've got a lot of event risk still the rest of this
week," said Steve Butler, director of foreign exchange trading
at Scotia Capital.
 "The market is a little bit cautious about getting too long
Canada on the move down this morning so not surprised to see
people bailing out this afternoon."
 BMO's Guatieri said a strong Republican victory on Tuesday
could prompt an equity market rally, which could support
peripheral currencies including the Canadian dollar.
 Looking ahead to the rest of the week, policy decisions are
also due from the European Central Bank as well as the central
banks of Australia, Japan, and England. U.S. and Canadian
monthly jobs data, due Friday, is also key.
 In addition, investors will also be keeping an eye on
developments in Anglo-Australian miner BHP Billiton's push to
buy Potash Corp., a fertilizer giant and one of Canada's
biggest companies.
 Ottawa is due to decide by Nov. 3 whether BHP's bid will
bring a net benefit to Canada, which would allow it to clear
the bid or approve it with conditions. [ID:nLDE6A00HD]
 The deal, currently worth $39 billion, boosted the Canadian
dollar when it was first announced in August. If successful,
the currency is likely to get another lift as many Canadian
shareholders convert their U.S. dollar payouts back to the
domestic currency.
 The Canadian dollar ended the North American session at
C$1.0161 to the U.S. dollar, or 98.42 U.S cents, up from
Friday's finish at C$1.0202 to the U.S. dollar, or 98.02 U.S.
 Butler noted however that the area around C$1.01 to
C$1.0120 was still providing support for the U.S. dollar.
 "If we can close below C$1.0080, I think the market will
feel a lot better about Canada," he said.
 Canadian bond prices dipped, tracking U.S. Treasuries
lower, as stronger-than-forecast U.S. manufacturing and
construction spending data had investors rethinking the
potential Fed purchases of long-term debt.
 While the prospect of quantitative easing has recently
pushed yields lower, that has largely already been priced in,
said Guatieri.
 "Now if the Fed surprises on the upside and dishes out more
QE than the market expects, we could see a further rally in
Treasuries," he noted.
 The two-year bond CA2YT=RR was off 2 Canadian cents to
yield 1.414 percent, while the 10-year bond CA0YT=RR shed 25
Canadian cents to yield 2.833 percent.
 (Additional reporting by Ka Yan Ng; Editing by Jeffrey

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