C$ firms after Fed announcement, hits 7-month high

Wed Apr 25, 2012 2:25pm EDT

* C$ at C$0.9836 to the US$, or $1.0164
    * Hits highest since Sept. 19 at C$0.9823
    * Market looks to Bernanke, Carney statements
    * Bond prices mostly lower

    By Jon Cook	
    TORONTO, April 25 (Reuters) - Canada's dollar rose to a
seven-month high against its U.S. counterpart on Wednesday as
euro zone debt concerns eased and the U.S. Federal Reserve said
it would keep interest rates on hold until at least late 2014, a
week after the Bank of Canada signaled it may withdraw stimulus
measures. 	
    The Fed on Wednesday repeated its promise to leave interest
rates on hold near zero and described the U.S. economy as
expanding moderately. It said economic conditions "are likely to
warrant exceptionally low levels for the federal funds rate at
least through late 2014." Fed Chairman Ben
Bernanke will speak at a news conference this afternoon. 	
    The Fed decision contrasted sharply with last week's Bank of
Canada announcement that surprised the market with its hawkish
tone and its suggestion that it may need to start raising
interest rates. 	
    "Right now, Canada is looking like one of the rare countries
where there's possible hikes in place," said Sebastien Lavoie,
an economist at Laurentian Bank of Canada BLC Securities.
"Whereas in other countries there will probably be no
modification at all in the stance of monetary policy."	
    Higher interest rates or expectations of higher rates tend
to help currencies strengthen by attracting international
capital flows. The Canadian dollar would likely strengthen
further against the greenback should Canada raise rates ahead of
the Fed.	
    At 1:43 p.m. (1543 GMT), the Canadian dollar was at
C$0.9836 against the U.S. dollar, or $1.0164, up from Tuesday's
finish at C$0.9880 against the U.S. dollar, or $1.0121. It
touched C$0.9823, its highest against the greenback since Sept.
19.	
    On Wednesday, Bank of Canada Governor Mark Carney will
address the Senate Standing Committee on Banking, a day after he
told the House of Commons finance committee that the central
bank might have to increase interest rates because of the
stronger performance of the economy and firmer underlying
inflation. 	
    A recent Reuters survey of the country's primary dealers
showed the median forecast for the timing of the next rate
increase being pushed up to the first quarter of 2013. 	
    "The idea that Carney will not wait for Bernanke to
eventually withdraw some of the stimulus is certainly a positive
development for an appreciation of our currency," said Lavoie.	
    Canada's dollar also benefited from a rally in equity
markets, which advanced after forecast-beating results from
Apple Inc boosted optimism in a corporate earnings
season already outstripping expectations by a wide margin. 
 	
    "The No. 1 thing was Apple. That certainly spurred the
market into a risk-on mode, helping Canada," said Steve Butler,
managing director of foreign exchange trading at Scotiabank.	
    Also contributing to the market mood for riskier assets was
weaker demand at a German auction of new 30-year bonds. The
ultra low yielding but safe paper seemed to be much less
attractive to investors. 	
    Canadian government bond prices were mostly lower with the
two-year bond down 5 Canadian cents to yield 1.449
percent. The benchmark 10-year bond sank 40 Canadian
cents to yield 2.119 percent.
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