CANADA FX DEBT-Loonie little changed as investors fixate on Fed

Tue Dec 17, 2013 9:37am EST

* Canadian dollar at C$1.0593 or 94.40 U.S. cents
    * Bond prices higher across the maturity curve

    By Leah Schnurr
    TORONTO, Dec 17 (Reuters) - The Canadian dollar was little
changed against the greenback on Tuesday and was expected to
stay in a range heading into a Federal Reserve meeting as
investors try to gauge whether the central bank could begin
winding down its economic stimulus.
    Data released on Tuesday could give the Fed cover to start
dialing back as U.S. consumer prices were flat in November,
though the annual inflation rate bounced back from a four-year
low. 
    In Canada, a separate report showed Canadian manufacturing
sales jumped on strong sales in the food sector. The loonie saw
muted reaction to both reports. 
   The Fed will release a statement on Wednesday at the end of
its two-day meeting. Investors will be looking for clarity into
the path of the central bank's asset purchase program, with some
seeing the possibility the Fed could begin reducing its $85
billion a month in bond buys.
    "I think there's still somewhere around a 30 percent chance
that they might begin some sort of modest amount of tapering, in
which case we would see the U.S. dollar react positively at the
time," said Don Mikolich, executive director of foreign exchange
sales at CIBC World Markets in Toronto.
    A faster timetable for the Fed is seen as a negative for the
Canadian dollar because it is expected to reduce the appetite
for risk and benefit the U.S. currency.
    "I would suspect if they do go ahead, it will be in a very
modest way (and) any reaction will be more responding to the
commencement of the program rather than what the economic
implications for it are," said Mikolich.
    The Canadian dollar was at C$1.0593 to the
greenback, or 94.40 U.S. cents, slightly weaker than Monday's
close of C$1.0587, or 94.46 U.S. cents.
    The loonie is likely to trade in the C$1.055 to C$1.0640
range, said Mikolich, though if the Fed does move toward
tapering, the C$1.0735 levels could come back into play. The
Canadian currency traded as far as C$1.0708 earlier in the
month, its lowest level in 3-1/2 years.
    Canadian government bond prices were higher across the
maturity curve, with the two-year up half a Canadian
cent to yield 1.113 percent and the benchmark 10-year
 up 6 Canadian cents to yield 2.668 percent.
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