CANADA FX DEBT-C$ firms but outlook stays weak after Fed move

Thu Dec 19, 2013 5:07pm EST

* Canadian dollar at C$1.0666 or 93.76 U.S. cents
    * Bond prices mostly lower across the maturity curve


    By Leah Schnurr
    TORONTO, Dec 19 (Reuters) - The Canadian dollar closed
firmer against the greenback on Thursday, bouncing up from a
3-1/2-year low, though the outlook for the currency was still
seen as bearish after the U.S. Federal Reserve's decision to
start scaling back its economic stimulus program.
    The Fed announced on Wednesday it will modestly trim its
quantitative easing program, known as "QE", which has been a
significant driver of global markets across asset classes this
year.
    The Fed tried to temper reaction to the move by suggesting
its key interest rate would stay low for even longer than it had
promised. 
    The reduction in Fed bond-buying is seen as a negative for
the Canadian dollar because it is expected to direct capital
flows to the U.S. currency on the expectation of higher returns.
    The loonie weakened following Wednesday's announcement and
hit its lowest level since May 2010 in the overnight session.
    "After the move yesterday, we were looking for a bit of a
retracement in dollar-Canadian dollar," said David Bradley,
director of foreign exchange trading at Scotiabank in Toronto.
    "This is just a bit of a correction and over the course of
the next 10 days or so, with the holiday-thin market, we can
probably have a chance to trade back up toward C$1.075, C$1.08."
    The Canadian dollar ended the North American
session at C$1.0666 to the greenback, or 93.76 U.S. cents,
stronger than Wednesday's close of C$1.0689, or 93.55 U.S.
cents.
    The Canadian dollar was also stronger against its major
currency pairings.
    Sentiment for the loonie has been generally bearish in
recent months, with the currency hit by expectations the Fed
would withdraw stimulus and a more dovish shift from the Bank of
Canada that has left analysts expecting that interest rates at
home will stay low for longer.
    Canadian government bond prices were mostly lower across the
maturity curve, with the two-year down 6-1/2 Canadian
cents to yield 1.137 percent and the benchmark 10-year
 down 20 Canadian cents to yield 2.705 percent.
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