CANADA FX DEBT-C$ stronger as Yellen boosts commodity-linked currency

Fri Nov 15, 2013 4:51pm EST

* C$ at C$1.0447 vs US$, or 95.72 U.S. cents
    * Canada manufacturing sales rise 0.6 pct in Sept
    * Bond yields mostly lower across the maturity curve

    By Alastair Sharp
    TORONTO, Nov 15 (Reuters) - The Canadian dollar ended
stronger against the greenback on Friday as investors bid up the
commodity-linked currency a day after Federal Reserve Chair
nominee Janet Yellen defended the U.S. central bank's ongoing
monetary stimulus.
    At a hearing on Thursday on her nomination to head the Fed,
Yellen defended the U.S. central bank's steps to spur economic
growth and called efforts to boost hiring an "imperative".
 
    The result in currency markets has been "the calming of the
taper tantrum," said Karl Schamotta, director of foreign
exchange strategy at Cambridge Mercantile Group, referring to
the previously rising expectations that the Fed would signal a
reduction in the asset-buying program soon.
    Helping the Canadian currency, manufacturing sales jumped in
September to their highest since June 2012 on strength in the
auto and food industries, an encouraging sign the hard-hit
sector may be rebounding.     
    "While it is certainly positive and it helps to indicate a
pivot toward more sustainable growth, the path there will be
fraught with many perils," Cambridge's Schamotta said, pointing
out that predictions for upcoming data are broadly pessimistic.
    "We definitely have underlying bearish sentiment percolating
across the landscape right now so there's a lot of vulnerability
in the Canadian dollar, a lot of people waiting to jump in past
the C$1.05 mark," he said.
    The currency ended the day at C$1.0447 to the
greenback, or 95.72 U.S. cents, compared to Thursday's close of
C$1.0468, or 95.53 U.S. cents. It gained 0.3 percent this week.
    Schamotta predicted the loonie would trade between C$1.0425
and C$1.0535 next week.
    The remarks from Yellen were seen by markets as offering
reassurance that the Fed's economic stimulus efforts will
continue, but her comments also contained few surprises.
    "Overall, the take away is it signaled continuity at the
Fed," said Greg Moore, FX strategist at TD Securities in
Toronto.
    "(Yellen) did sound a little bit more dovish, but she
sounded almost exactly like Bernanke in a lot of what she was
saying, so a new Fed chair that is essentially an extension of
Bernanke policy doesn't signal that much for QE policy."
    While continued accommodative policy from the Fed should
support the loonie, uncertainty over the timing of the wind-down
of stimulus is keeping the currency in a tight range for now,
said Dean Popplewell, chief currency strategist at OANDA in
Toronto.
    A longer timetable for reducing quantitative easing could
boost risk-appetite in the market, ultimately benefiting the
Canadian dollar. 
    "Central banks have a stranglehold on forex markets
currently and I do not see that situation changing any time
soon," Popplewell said.     
    Canadian bond yields were mostly lower across the maturity
curve, with the two-year bond off 2 and a half
Canadian cents to yield 1.119 percent, while the benchmark
10-year bond slipped 8 Canadian cents to yield 2.565
percent.
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