CANADA FX DEBT-C$ extends losses as Fed minutes boost US$

Wed Feb 20, 2013 3:56pm EST

* C$ at C$1.0181 vs US$, or 98.22 U.S. cents, a 7-month low
    * Canadian currency does better against euro, yen, Aussie
    * Minutes of Fed meeting show some support for tapering QE

    By Alastair Sharp
    TORONTO, Feb 20 (Reuters) - The Canadian dollar touched a
fresh seven-month low against its U.S. counterpart on Wednesday
as the greenback got a lift from minutes from last month's
Federal Reserve meeting that showed some support for scaling
back the Fed's bond-buying program.
    Also undercutting the loonie, as Canada's currency is
colloquially known, were figures that showed home prices fell
for a fifth straight month in January, the latest in a string of
dismal data points for the Canadian economy.    
    "The domestic data is starting to take a toll on the
Canadian dollar...and with all other things being equal, the
pair wants to drift higher," said Adam Button, a currency
analyst at ForexLive in Montreal.
    Hints the Fed could pare back its asset purchases should
help the greenback and hurt the loonie, which has recently
benefited from a comparatively hawkish Bank of Canada tone.
 
    But the Canadian dollar tracked the greenback's gain against
other major currencies after the Fed minutes were released as
investors saw the statement as a broad endorsement of U.S.
economic recovery that would likely also boost Canada, which
counts the United States as its largest trading partner by far.
    "The interpretation of the minutes is it's more likely the
Fed will cut QE (quantitative easing) later this year, and they
will do that only if the economy improves, so really it's an
endorsement of the economy," Button said.
    
    FURTHER WEAKNESS EYED
    At 3:28 p.m. (2028 GMT) the Canadian dollar was
trading at C$1.0181 to the greenback, or 98.22 U.S. cents,
compared with C$1.0118, or 98.83 U.S. cents, at Tuesday's North
American close.
    Those levels are the weakest for the loonie since last July,
when it traded above C$1.02.
    "It's consistent with markets being slightly risk-negative
and (U.S.) dollar positive for that matter," said Adam Cole,
global head of foreign exchange strategy at Royal Bank of
Canada.
    ForexLive's Button said the loonie could weaken as low as
C$1.04 in coming weeks, while it would struggle to appreciate
beyond C$1.01.
    The loonie performed better against the euro,
Japanese yen, and Australian dollar,
recouping some morning losses after the Fed minutes.
    It gained sharply against the British pound after
minutes from a Bank of England meeting showed policymakers were
willing to ease monetary policy further.     
    Global equity markets extended losses after the Fed minutes
were released, while oil and gold both fell. 
  
    The two-year bond added 3 Canadian cents to yield
1.125 percent, while the benchmark 10-year bond 
slipped 1 Canadian cent to yield 2.025 percent.
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