CANADA FX DEBT-C$ firms as view of Fed decision gets cloudy

Wed Jan 29, 2014 10:01am EST

* Canadian dollar at C$1.1122 or 89.91 U.S. cents
    * Bond prices higher across the maturity curve

    By Leah Schnurr
    TORONTO, Jan 29 (Reuters) - The Canadian dollar firmed
against the greenback on Wednesday as the market view of what
the U.S. Federal Reserve would say in its policy announcement
later in the day became clouded by concern over instability in
emerging markets.
    Investors have expected the U.S. central bank to further
scale back its stimulus program, but some analysts say the
pressure from emerging markets could spur it to stand pat.
    The loonie was buffeted by heightened risk aversion around
the world with emerging market currencies back under pressure
even after a surprisingly large hike in interest rates from
Turkey late on Tuesday. 
    The volatility in global markets in recent days has come on
a combination of country-specific problems and worries that
reduced bond-buying from the Fed will reduce the liquidity that
has boosted emerging market assets.
    The selloff that started late last week has put even more
focus on the Fed's policy decision later on Wednesday. Markets
have expected the Fed to trim its bond buying by another $10
billion a month. 
    "It's really a story where the Canadian dollar is probably a
little bit in the shadows right now," said David Tulk, chief
Canada macro strategist at TD Securities in Toronto.
    "Everyone is looking at risks of contagion in the emerging
world and seeing, ultimately, if that will effect the Fed's
decision whether they want to continue to taper their asset
purchase program."
    The Canadian dollar was at C$1.1122 to the
greenback, or 89.91 U.S. cents, stronger than Tuesday's close of
C$1.1156, or 89.64 U.S. cents. The loonie briefly touched a
4-1/2-year low on Tuesday.
    The perception of some investors that the pressure on
emerging markets might prompt the Fed to hold steady was partly
contributing to the strength of the Canadian dollar in early
trade, Tulk said.
    A faster timetable for the Fed winding down its quantitative
easing program has typically been bearish for the loonie as it
boosts the U.S. dollar.
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 1 Canadian cent
to yield 0.964 percent and the benchmark 10-year up
28 Canadian cents to yield 2.386 percent.
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