CANADA FX DEBT-C$ firms but investors await Fed clarity

Tue Dec 10, 2013 9:34am EST

* Canadian dollar at C$1.0619 or 94.17 U.S. cents
    * Bond prices higher across the maturity curve

    By Leah Schnurr
    TORONTO, Dec 10 (Reuters) - The Canadian dollar firmed
against the greenback on Tuesday, continuing to consolidate
after recent declines as investors sought clarity on the path of
U.S. monetary policy.
    U.S. Federal Reserve policymakers will meet for two days
next week and investors are trying to gauge whether the central
bank will announce it is reducing the pace of its economic
stimulus efforts, or whether it will hold off until next year.
    Last week's better-than-expected jobs data in the United
States has supported expectations the Fed could start slowing
its stimulative bond-buying program sooner rather than later.
    A top Fed official on Monday gave his voice to a growing
contingent at the central bank that has argued for reducing the
Fed's bond buying at its meeting next week. 
    The Fed is currently buying $85 billion a month in bonds as
part of its quantitative easing, or "QE", program as it tries to
keep borrowing costs low and boost the economic recovery.
    "The message is really that QE tapering is an option at any
meeting, as opposed to December is a high probability now," said
Greg Moore, FX strategist at TD Securities in Toronto.
    "That being said, quite a lot of market participants,
ourselves included, have brought forward their expectations, but
for the most part that hasn't been as far as December, it's
mostly January," said Moore. TD Securities is now expecting the
Fed will taper in January.
    The Canadian dollar was at C$1.0619 to the
greenback, or 94.17 U.S. cents, stronger than Monday's close of
C$1.0635, or 94.03 U.S. cents.
    A faster timetable for the Fed is seen as a negative for the
Canadian dollar as the move is expected to reduce risk appetite
and benefit the U.S. currency.
    The loonie touched a 3-1/2-year low of C$1.0708 last week,
undermined by a number of bearish factors, including a more
dovish Bank of Canada, weaker oil prices and uncertainty over
the Fed's plan. 
    The currency will likely see a range of between the
mid-C$1.06 levels and mid-C$1.05 in the short-term, said Moore.
    Canadian government bond prices rose across the maturity
curve, with the two-year up 2-1/2 Canadian cents to
yield 1.072 percent and the benchmark 10-year up 39
Canadian cents to yield 2.620 percent.
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