CANADA FX DEBT-C$ hits 6-week low as Fed pullback still expected

Wed Aug 21, 2013 5:19pm EDT

* C$ at C$1.0473 vs US$, or 95.48 U.S. cents
    * Most on FOMC say reducing stimulus not yet appropriate
    * Market maintains expectation of tapering in September

    By Solarina Ho
    TORONTO, Aug 21 (Reuters) - The Canadian dollar weakened to
a six-week low against the U.S. dollar on Wednesday after the
release of minutes from the U.S. Federal Reserve's July policy
meeting failed to change market  expectations that the Fed will
begin scaling back its stimulus program in September.
     The minutes showed that a few members of the Federal Open
Market Committee (FOMC) said it might soon be time to slow the
pace of the central bank's bond-buying program "somewhat", but
others counseled patience. Almost all of the 12 FOMC members
agreed that reducing stimulus was not yet
appropriate. 
     The report offered little new insight on when the U.S.
central bank might cut back its purchases, and the market stuck
to the view that the pullback would start in September, which
pushed up the greenback.
    The Canadian dollar finished Wednesday's session at
C$1.0473 versus the greenback, or 95.48 U.S. cents, sharply
weaker than Tuesday's North American close of C$1.0389, or 96.26
U.S. cents.
    The dollar index, which measures the U.S. dollar against a
basket of six currencies, rose 0.5 percent to 81.308.
 
    The Canadian dollar traded as soft as C$1.0483, its weakest
level since July 10.
    "That's on U.S. dollar strength," said Derek Holt, vice
president of economics at Scotiabank. 
    "I think the trend is U.S. dollar strengthening, CAD
weakening off into next year, but I think the bumpy pattern over
the next few weeks is going to take a little bit of the strength
out of the U.S. dollar if the Fed doesn't taper in September." 
    Holt, who expects the Fed to move in December, said there
was much more uncertainty reflected in the July minutes than in
June's.
    Growth-linked currencies extended losses as global equity
markets came under pressure, but the Canadian dollar still
outperformed its sister commodity currencies: the Australian
 and New Zealand dollars.
    The price of Canadian government debt was mostly lower
across the maturity curve. The two-year bond was off
5.3 Canadian cents to yield 1.216 percent, while the benchmark
10-year bond fell 58 Canadian cents to yield 2.755
percent.
    The yields on the 10-, 20- and 30-year bonds
 all touched their highest levels in more than two
years.
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