CANADA FX DEBT-C$ gains ground as investors consolidate

Mon Jan 27, 2014 9:49am EST

* Canadian dollar at C$1.1042 or 90.56 U.S. cents
    * Bond prices lower across the maturity curve

    By Leah Schnurr
    TORONTO, Jan 27 (Reuters) - The Canadian dollar firmed
against the greenback on Monday, consolidating after last week's
4-1/2-year lows as investors looked for safe assets in the wake
of an emerging markets sell-off.
    A combination of country-specific problems and expectations
the Federal Reserve will scale back its economic stimulus kept
pressure on emerging markets and risky assets after selling that
started last week.
    "There's some stabilization, but it's very much still a
story of quality and investors looking for quality," said Scott
Smith, senior market analyst at Cambridge Mercantile Group in
Calgary.
    "So we're seeing the Canadian dollar benefit a little bit
from that."
    The Canadian dollar was at C$1.1042 to the
greenback, or 90.56 U.S. cents, stronger than Friday's close of
C$1.1073, or 90.31 U.S. cents.
    The Canadian dollar, which has come under pressure in recent
months, touched a 4-1/2-year low last week after dovish comments
from the Bank of Canada.
    Investors' focus will be turning toward the U.S. Federal
Reserve's policy-setting meeting later this week. Markets are
positioning for the Fed to reduce its stimulative bond-buying
program by another $10 billion a month, bringing it to $65
billion a month, said Smith. 
    "Anything in terms of differentiating from that, we'll
definitely see currencies move, so if they decide to pull off
more than the $10 billion, we'll see the U.S. dollar gain
strength," said Smith.
    The loonie will likely be capped around C$1.10 in the
short-term, though a surprise from the Fed could see it
strengthen to the mid-C$1.09 area, said Smith. On the downside,
the currency should find a floor at last week's lows around
C$1.1173 to C$1.1175, he said.
    On the domestic front, the economic calendar is light except
for Canadian gross domestic product for November due on Friday.
 
    Canadian government bond prices were lower across the
maturity curve, with the two-year down 4-1/2 Canadian
cents to yield 0.990 percent and the benchmark 10-year
 down 10 Canadian cents to yield 2.413 percent.
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