CANADA FX DEBT-C$ strikes 13-mth high after aggressive Fed move

Thu Sep 13, 2012 2:20pm EDT

* C$ hits C$0.9693 vs US$, or $1.0317, strongest since Aug.
4, 2011
    * Fed launches aggressive monetary easing
    * Fed to hold interest rates until mid-2015
    * Bond prices fall across the curve

    By Solarina Ho
    TORONTO, Sept 13 (Reuters) - The Canadian dollar
strengthened to its firmest level in more than a year against
its U.S. counterpart after the U.S. Federal Reserve announced an
aggressive third round of stimulus on Thursday.
    The U.S. central bank said it will buy $40 billion of
mortgage debt per month and continue to purchase assets until
the outlook for jobs improves substantially. 
    In a significant shift in the direction of U.S. monetary
policy, the Fed has tied its unconventional bond buying directly
to economic conditions.
    "The Fed is making a clear commitment they're going to
continue to supply liquidity to the system until we see better
numbers emerge in U.S. labor markets," said Paul Ferley,
assistant chief economist at Royal Bank of Canada.
    "It's an indication of the very aggressive approach by the
Fed. A little more aggressive than what was assumed."
    In addition, policymakers said they would likely hold
interest rates at current lows until at least mid-2015 from an
earlier guidance of 2014.
    Canada's dollar touched C$0.9693 versus the U.S.
dollar, or $1.0317, firmer than C$0.9764, or $1.0242 shortly
before the announcement, and stronger than Wednesday's North
American session close at C$0.9766, or $1.0240.
    This is the currency's strongest level against the U.S.
dollar since Aug. 4, 2011 when it touched C$0.9603, or $1.0413.
    It has rallied more than 2 percent in the last week on the
back of a Fed stimulus move, a stronger Canadian labor
environment, a hawkish Bank of Canada stance and a bond buyback
plan announced by the European Central Bank.
    The currency has also outperformed other major currencies
this year, strengthening more than 5 percent against the
greenback.
    Canadian government bond prices fell across the curve after
the Fed decision, with the two-year bond down 1
Canadian cent to yield 1.195 percent. The benchmark 10-year bond
 slid 17 Canadian cents, yielding 1.921 percent.
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