December 16, 2009 / 10:12 PM / 10 years ago

CANADA FX DEBT-C$ ekes out gain; rangebound after BoC, Fed

 * C$ ends higher at 94.30 U.S. cents
 * Fed keeps rates near zero, voices some optimism
 * BoC downplays talk of a housing bubble
 (Updates to close, additional comment)
 By Ka Yan Ng
 TORONTO, Dec 16 (Reuters) - The Canadian dollar finished
slightly higher against the U.S. currency on Wednesday after
market players digested news that the U.S. Federal Reserve kept
interest rates near zero, while the Bank of Canada downplayed
talk of a housing bubble.
 The Fed rate decision and a speech by Bank of Canada
Governor Mark Carney were the events of the session, but
neither managed to sway the Canadian dollar out of its recent
 The Fed voiced guarded optimism that the battered U.S. job
market was improving, but it repeated a vow to keep interest
rates extraordinarily low for "an extended period," prompting a
short-lived boost to the U.S. currency against the Canadian
unit. [ID:nN16119711]
 In a speech addressing concerns about an overheating
housing market, Carney repeated that Canadian household debt
has risen sharply relative to income but said the risks to the
financial system are small and do not warrant an early interest
rate hike by the bank. [ID:nN1697463]
 "There was not a whole lot of reaction for either him or
the (Fed). We're still stuck in a range for Canada," said Shaun
Osborne, chief currency strategist at TD Securities.
 "The data tomorrow could still have some impact but it
seems as if we are just going to drift into the end of the week
stuck in a bit of a range here."
 The Canadian dollar finished at C$1.0605 to the U.S.
dollar, or 94.30 U.S. cents, up slightly from C$1.0614 to the
U.S. dollar, or 94.22 U.S. cents, at Tuesday's close.
 The currency was at its firmest, at 94.60 U.S. cents, soon
after data showed Canadian manufacturing sales rose twice as
much as expected in October from September, jumping 2 percent
on strength in the aerospace, energy and auto industries.
 Canada's consumer price index for November and the U.S.
Philadelphia Federal Reserve Bank's manufacturing index are
some of the key economic reports markets are set to absorb on
 Despite easing in the 12 months to November, Canadian core
inflation appears to be a little firmer than the Bank of
Canada's 1.4 percent projection for the fourth quarter, raising
expectations that interest rate hikes expected for later next
year could be aggressive. Core inflation, which strips out
volatile items like gasoline prices, is seen easing.
 Canadian short-term bonds were lower, partly because stock
markets held strong gains, suggesting risk appetite was up.
 Toronto's main stock index hit its loftiest level in nearly
two weeks on Wednesday en route to a higher close. [.TO]
 The two-year government bond CA2YT=RR was down 7 Canadian
cents at C$99.86 to yield 1.323 percent, while the 10-year bond
CA10YT=RR was up 9 Canadian cents at C$102.86 to yield 3.394
 Canadian bonds put in mixed performance against U.S.
treasuries, with the 10-year yield spread widening to 20.2
basis points below its U.S. counterpart from 18.9 basis points
in the previous session.
 (Editing by Rob Wilson)

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