October 20, 2010 / 8:34 PM / 10 years ago

CANADA FX DEBT-C$ rises in "risk on" move after Fed talk

 * C$ ends higher at C$1.0222, or 97.83 U.S. cents
 * Bond prices soften with risk-on move  (Updates to close, adds quote)
 By Jennifer Kwan
 TORONTO, Oct 20 (Reuters) - Canada’s dollar climbed on Wednesday as the U.S. currency skidded on more conjecture about the U.S. Federal Reserve further easing monetary policy, and after the Bank of Canada said it would be cautious about raising interest rates in the future.
 The Canadian central bank said in its Monetary Policy Report on Wednesday it would have to consider any further rate hikes carefully, given the patchy global recovery, a weak U.S. outlook and expected curbs on Canadian growth. It also said there was still considerable monetary stimulus in place. [ID:nN20216189]
 On Tuesday, the bank left its benchmark interest rate unchanged at 1.0 percent.
 Markets largely expect the Bank of Canada to stand pat on interest rates until early next year, said Benjamin Reitzes, economist at BMO Capital Markets. But at the same time, its “next move looks to be a hike, not a cut, as maybe some people were speculating,” he said.
 Reitzes said the Canadian dollar’s move higher on Wednesday was largely driven by external factors.
 “It’s risk on. Stocks are stronger, the U.S. dollar is broadly weaker, the euro is stronger, the pound is stronger, the yen and Aussie dollar are stronger, commodities are stronger. You put all that together and Canada goes up as well,” he said.
 Camilla Sutton, chief currency strategist at Scotia Capital, pointed to a weak U.S. dollar as a key culprit.
 The greenback extended losses against the euro and yen on Wednesday after a report from a U.S. think tank suggested the Federal Reserve planned to boost growth by purchasing $500 billion in Treasury debt over six months. [FRX]
 “I think there’s been a lot of rumor in the market over speculation on the size of Fed quantitative easing and how soon it will be put in place. That’s pushed some U.S. dollar weakness,” she said.
 The Canadian dollar CAD=D4 ended at C$1.0222 to the U.S. dollar, or 97.83 U.S. cents, up from Tuesday’s finish at C$1.0319 to the U.S. dollar, or 96.91 U.S. cents.
 With higher commodity and equity prices reflecting investor desire for risk, Canadian bond prices mostly declined. The two-year bond CA2YT=RR fell 7 Canadian cents to yield 1.372 percent, while the 10-year bond CA10YT=RR shed 34 Canadian cents to yield 2.743 percent.
 Canadian bonds mostly underperformed U.S. Treasuries across the curve. The Canadian two-year bond  CA2YT=RR was 102 basis points above the U.S. two-year yield, compared with about 98 basis points above on Tuesday.
 There were several new debt issues on Wednesday, including a C$1.5 billion Canadian Imperial Bank of Commerce (CM.TO) issue, according to a term sheet seen by Reuters. [CA-TNC]  (Reporting by Jennifer Kwan; editing by Peter Galloway)                                                      

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