CANADA FX DEBT-C$ perks up ahead of Fed policy decision

Tue Jan 29, 2013 4:45pm EST

* C$ ends firmer at C$1.0024 vs US$, or 99.76 U.S. cents
    * Traders eye Fed policy meeting, U.S. Q4 GDP

    By Claire Sibonney
    TORONTO, Jan 29 (Reuters) - The Canadian dollar advanced
modestly against its U.S. counterpart on Tuesday as the
greenback came under pressure due to expectations that the U.S.
Federal Reserve will maintain its ultra-easy monetary policy for
the foreseeable future.
    The Fed ends a two-day policy meeting on Wednesday, and some
analysts say the central bank could reinforce views that it will
continue its quantitative easing program. Further easing is
expected by many to hurt the U.S. dollar as the program
increases the money supply. 
    "We had profit-taking on the greenback ahead of the Fed
announcement tomorrow so that helped the loonie rebound from
six-month lows," said Joe Manimbo, senior market analyst at
Western Union Business Solutions in Washington.
    Manimbo also noted that a rebound in Australian business
confidence and a surprising trade surplus in New Zealand also
helped boost commodity bloc currencies broadly.
    The Canadian dollar ended the North American
session at C$1.0024 to the greenback, or 99.76 U.S. cents,
compared with C$1.0065, or 99.35 U.S. cents, at Monday's close.
    The Canadian currency appears to have settled into a fresh
range between C$1.01 and equal value with the U.S. dollar after
weakening sharply last week on a dovish shift in the Bank of
Canada's stance.
    Canada's central bank said it would hold rates steady for
longer than it had expected, and tepid inflation data later in
the week backed up that position. 
    Investors will be seeking clues about the strength of the
North American economy from U.S. fourth-quarter GDP figures on
Wednesday and Canada's November GDP numbers on Thursday.
    Canadian bond prices eased across the curve as riskier
assets such as commodities and equities advanced. 
    Canada's two-year bond was down 2 Canadian cents
to yield 1.162 percent, while the benchmark 10-year bond
 slipped 32 Canadian cents to yield 1.997 percent.
    Desjardins senior economist Jimmy Jean noted that for the
first time since last spring, the yield on the Canadian
benchmark 10-year bond is around the same level as its U.S.
counterpart.
    "The spread has tended to close in phases of optimism and
expand during periods of pessimism. Lingering uncertainties are
likely to cause a slight outperformance of U.S. bonds and a
re-widening of the spread in February," Jean said in a note to
clients.
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