CANADA FX DEBT-Canada dollar down as U.S. dollar gains on Fed hunch

Tue Nov 12, 2013 4:44pm EST

* Canada dollar at C$1.0493 vs US$, or 95.30 U.S. cents
    * Fall vs US dollar comes amid the greenback's broad gains
    * Expectations grow that Fed will trim stimulus soon

    By Alastair Sharp
    TORONTO, Nov 12 (Reuters) - The Canadian dollar ended weaker
after hitting a two-month low against the U.S. currency on
Tuesday as speculation the U.S. Federal Reserve is closer to
trimming its monetary stimulus lent program gave support to the
greenback.
    Given a dearth of domestic data this week, the loonie is
expected to drift even weaker in the face of bullish bets on the
U.S. dollar. 
    "There's very few reasons to believe that the Canadian
dollar will turn around its fortunes specifically against the
U.S. dollar in the coming days," said Brad Schruder, a director
on BMO Capital Markets' foreign exchange desk, who expects it to
trade between C$1.0440 and C$1.0525 this week.
    The Canadian dollar ended the day trading at
C$1.0493 to the greenback, or 95.30 U.S. cents, compared with
C$1.0475, or 95.47 U.S. cents, at Monday's North American close.
    Illustrating the difficulty of improving against the
greenback in the current environment, the loonie barely budged
after the federal government said in the afternoon that it had
raised its expectation for a surplus in 2015. 
    "Normally, that would be a quasi-bullish Canadian dollar
event because it is a reflection of a solid economic backdrop,
and you haven't seen the loonie pick up any type of gains on the
back of that," Schruder said.
    Robust jobs and economic growth data from south of the
border released last week has bolstered the view the Fed could
soon cut back on its $85 billion-a-month in bond buying, perhaps
even as soon as at its December meeting.
    Adding to broad U.S. dollar strength against a basket of
currencies, the European Central Bank last week cut interest
rates in the euro zone to a record low.
    "We've had a big shift last week. We had the ECB show itself
to be aggressive and we had data in the U.S. much stronger than
expected, and we have globally an environment of disinflation,"
said Camilla Sutton, chief currency strategist at Scotiabank.
"All three of those things come together to support a stronger
U.S. dollar." 
    The two-year bond was off 2 Canadian cents to
yield 1.139 percent, while the benchmark 10-year bond
 fell 30 Canadian cents to yield 2.647 percent.
    Scotia's Sutton said the biggest event on this week's
calendar is Thursday's Senate hearing of Fed Vice Chair Janet
Yellen, who has been nominated by President Barack Obama to
succeed Fed Chairman Ben Bernanke when his term expires in
January.
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