CANADA FX DEBT-C$ strengthens after last week's rout, Fed eyed

Mon Oct 28, 2013 4:25pm EDT

* C$ at C$1.0445 vs US$, or 95.74 U.S. cents
    * Canada dollar consolidates after last week's slide
    * U.S. Federal Reserve policy meeting in focus
    * Canadian bond prices mixed across the curve

    By Leah Schnurr
    TORONTO, Oct 28 (Reuters) - The Canadian dollar strengthened
against the greenback on Monday, recovering some of its recent
sharp drop, though investors were cautious ahead of a meeting of
Federal Reserve policymakers later this week.
    Highlighting weaker-than-expected growth and inflation
figures, the Bank of Canada last week dropped any mention of
eventual rate increases from its latest policy statement,
leading to expectations among analysts that rates will stay low
for longer.  
    The central bank has kept its key rate at 1 percent since
2010, and analysts said the removal of its rate-rise bias gives
its policy stance a more neutral tone.
    The policy shift took the "loonie" to a 1-1/2-month low by
Friday and the currency lost 1.6 percent for the week.
    "We're in that zone where the Bank of Canada has set its
tone now for a little bit here - growth forecasts down and
interest rate hikes on the distant horizon," said Don Mikolich,
executive director of foreign exchange sales at CIBC World
Markets.
    The Canadian dollar ended the North American
session at C$1.0445 versus the greenback, or 95.74 U.S. cents,
stronger than Friday's close of C$1.0455, or 95.65 U.S. cents. 
    Traders may get further insight in the Bank of Canada's
decision on Tuesday when BoC Governor Stephen Poloz appears
before a parliamentary finance committee in Ottawa.
    Investors also had their focus on the Federal Reserve's
two-day meeting, starting on Tuesday, though the U.S. central
bank was expected to hold the line on its economic stimulus
efforts. 
    The Fed surprised markets in September with its decision to
continue its bond-buying program at a $85 billion a month pace,
rather than trimming the amount. The Canadian dollar touched a
three-month high following that announcement, but has weakened
since.
    "We're basically just consolidating after last week," said
Scott Smith, senior market analyst at Cambridge Mercantile Group
in Calgary. 
    "The change in the Bank of Canada stance on interest rates
and the outlook for monetary policy in Canada has really trumped
that risk-on atmosphere in the 'loonie' that we got from the
delay in tapering," he added.
    Barring any surprises, the Canada dollar is likely to trade
in a range between the low C$1.05 area and the high C$1.03
levels, said Smith.
    Also on the data horizon this week is Canadian gross
domestic product for August, due on Thursday.
    Canadian government bond prices were mixed across the
maturity curve. The two-year bond was unchanged to
yield 1.088 percent, and the benchmark 10-year bond 
slipped 2 Canadian cents to yield 2.424 percent.
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