August 25, 2011 / 8:49 PM / 9 years ago

CANADA FX DEBT-C$ dips, bonds rise ahead of Bernanke speech

   * C$ ends lower at C$0.9868 to the U.S. dollar, or $1.0134
 * Bond prices rise as risk sentiment fades
 * Market braces for Bernanke’s speech on Friday
 * Buffett’s Bank of America investment gave an early lift  (Adds details)
 By Ka Yan Ng
 TORONTO, Aug 25 (Reuters) - The Canadian dollar finished a shade weaker on Thursday as a broadly advancing U.S. currency offset gains sparked by an early stock market rally.
 Enthusiasm for equities quickly faded through the morning as speculation mounted that U.S. Federal Reserve Chairman Ben Bernanke might not lay out new plans to stimulate the economy in a much-anticipated speech on Friday.
 “It was strengthening earlier on renewed risk appetite, but for the most part, I think there are ongoing concerns about the health of the global economy,” said Sal Guatieri, senior economist at BMO Capital Markets.   
 “We’re not expecting much from Bernanke’s speech tomorrow, certainly no clear signal for monetary easing.”
 The Canadian currency CAD=D4 ended at C$0.9868 to the U.S. dollar, or $1.0134, down from C$0.9866 to the U.S. dollar, or $1.0136, at Wednesday’s close.
 The build-up to Bernanke’s speech kept the Canadian currency locked in a tight range this week. But it was jolted as high as C$0.9791 to the U.S. dollar, or $1.02, its highest level in more than a week, in early action on Thursday after Warren Buffett’s conglomerate Berkshire Hathaway (BRKa.N) said it will invest $5 billion in Bank of America (BAC.N).
 The move may shore up the company in the same way as Buffett helped prop up Goldman Sachs (GS.N) during the financial crisis.
 While investors were optimistic that Bernanke would signal in his speech that the Fed is committed to take further measures if necessary to support the U.S. economy, many doubted that he would use the speech to launch a third round of quantitative easing.
 “I’m guessing a lot of people are in for disappointment. I don’t think there will be any major signal into a shift of policy,” said Charles St-Arnaud, Canadian economist and currency strategist at Nomura Securities International in New York.
 Investors expect Bernanke to stress that the Fed still has tools to support the U.S. economy, whose health is critical for Canada.
 St-Arnaud said the Canadian economy is in a “rough patch” but should recover enough for the Bank of Canada to raise interest hike rates, though at a slower pace given the Fed’s pledge to keep its rates low until 2013.
 “With all the uncertainty, the Bank of Canada will probably be more willing to wait until January before hiking. But the next move for them is a hike. There are still some rate cuts priced into the market,” St-Arnaud said.
 Canadian government bond prices were flat to higher across the curve, reflecting the reversal in equity markets and ebbing hopes of more Fed stimulus.
 Bond yields are expected to edge higher into 2012, but at a slower pace than previously thought, as fears about global growth will likely delay interest rate increases by the Bank of Canada, according to a Reuters poll.
 Economists and fixed income strategists slashed their money market and bond yield forecasts from July’s forecast in the monthly Reuters poll this week. [ID:nN1E77O0QS]
 The two-year bond CA2YT=RR was unchanged to yield 1.004 percent, while the 10-year bond CA10YT=RR climbed 48 Canadian cents to yield 2.411 percent.  (Reporting by Ka Yan Ng; editing by Peter Galloway)                            

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