CANADA FX DEBT-C$ falls back against greenback before Fed news

Tue Jul 30, 2013 4:26pm EDT

* C$ at C$1.0302 or 97.07 U.S. cents
    * Market watches two-day Fed meeting for stimulus policy
move
    * Domestic data shows some inflation in industrial prices
    * C$ hits almost three-year high vs A$ as Aussie rate cut
expected

    By Alastair Sharp
    TORONTO, July 30 (Reuters) - The Canadian dollar fell from a
five-week high against its U.S. counterpart in light trade on
Tuesday as traders bought the greenback ahead of Federal Reserve
signals on monetary stimulus policy that could result in a wild
swing in the currency pair.
    Beyond the Fed, which could on Wednesday point to a winding
down of its asset purchase program later this year, risks also
abound in U.S. and Canadian GDP readings, a meeting of the
European Central Bank, and in U.S. jobs data due on Friday.
    The failure of the loonie, as Canada's currency is
colloquially known, to strengthen beyond C$1.0250 in the last
week encouraged U.S. dollar buyers to emerge, said David
Bradley, director of foreign exchange trading at Scotiabank.
    "We've probably seen the bottom of the range in
dollar/Canada," he said. "And if we get some hawkish Fed-speak
over the next little while it will solidify that fact."
    The currency ended the session trading at C$1.0302
to the greenback, or 97.07 U.S. cents, compared with C$1.0260,
or 97.47 U.S. cents, at Monday's North American close.
    If the Fed pulls back aggressively on its monetary stimulus,
C$1.05 could be reached by the week's end, while a limited Fed
move could push the pair back to an equal footing, according to
Adam Button, a currency analyst at ForexLive in Montreal.
    "The spring is coiled very tightly now and whichever way
this C$1.0250/C$1.03 range breaks, you're going to see a
powerful move," Button said.
    The loonie soared to an almost three-year high of 93.05
Canadian cents against its commodity-backed cousin, the
Australian dollar, after that country's central bank
governor fueled expectations of a cut in interest rates next
week. 
    The Bank of Canada, conversely, has held to a mild
tightening bias for months, which could be aided by industrial
data that showed a surprise rise.
    "New Bank of Canada Governor (Stephen) Poloz will want to
take any opportunity to establish his inflation-fighting
credibility," Button said, while cautioning that domestic data
would be dwarfed by potentially explosive Fed news.
    Producer prices rose 0.3 percent in June from May on the
back of higher prices for autos and gasoline, while raw
materials prices also gained. Analysts had expected no change in
industrial prices. 
    The two-year bond was off three and a half
Canadian cents to yield 1.180 percent, while the benchmark
10-year bond fell 10 Canadian cents to yield 2.507
percent.
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