CANADA FX DEBT-Loonie weakens from 3-month high as Fed move assessed
* C$ at C$1.0262 against U.S. currency * Fed remains primary focus after holds purchases steady * Canadian bond prices mixed across the curve By Leah Schnurr TORONTO, Sept 19 (Reuters) - The Canadian dollar weakened on Thursday, pulling back from a three-month high as investors tried to gauge how long the U.S. central bank will keep its stimulus program in place the day after it defied market expectations by keeping policy steady. The U.S. Federal Reserve maintained its $85 billion a month in bond purchases in a decision on Wednesday, surprising investors who had largely expected a small reduction of about $10 billion. The Fed also cut its projections for economic growth for both this year and next. The Canadian dollar surged in the wake of the announcement and touched a fresh three-month high of C$1.0182 in early Thursday trading. But the dollar gave up that strength to end the day weaker. With the United States as Canada's biggest trading partner, the Fed's lower economic forecast could dampen investor enthusiasm for the loonie. "The flip side for the Canadian dollar is that our economic recovery is highly tied to the U.S., so a more downbeat forecast on future economic growth from the Fed isn't really a good thing for the Canadian economy," said Scott Smith, senior market analyst at Cambridge Mercantile Group in Calgary. "We're in this range where investors and traders are really trying to decipher whether or not this gives us impetus to take another leg lower from here or if we have to stand back and reassess the situation." The Canadian dollar ended at C$1.0262 to the U.S. dollar, or 97.45 U.S. cents, weaker than Wednesday's session close of C$1.0222, or 97.83 U.S. cents. Still, in the long term, continued quantitative easing from the Fed should be a positive for the Canadian dollar, said Adam Button, currency analyst at ForexLive. "We're seeing a dip in the Canadian dollar today but it won't last," said Button. "The Fed now will continue to flood the market with cheap liquidity ... and it will boost asset prices and commodity prices, and inevitably that's going to be good news for the Canadian dollar." Reaction to Thursday's domestic economic data was subdued as a stronger-than-expected 1.5 percent rise in wholesale trade in July was offset by a downward revision to the previous month's figures. Prices for Canadian government bonds were mixed across the maturity curve, with the two-year bond up 2 and a half Canadian cents to yield 1.251 percent, and the benchmark 10-year bond off 19 Canadian cents to yield 2.709 percent.
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