CANADA FX DEBT-C$ gains ground as investors parse Yellen

Tue Feb 11, 2014 5:46pm EST

* Yellen says Fed to keep trimming stimulus
    * Inline Canadian budget elicits little reaction from loonie
    * Canadian dollar at C$1.1017 or 90.77 U.S. cents
    * Bond prices mostly lower across the maturity curve


    By Leah Schnurr
    TORONTO, Feb 11 (Reuters) - The Canadian dollar firmed
against the greenback on Tuesday, helped by stronger risk
appetite and as investors took in comments from new Federal
Reserve Chair Janet Yellen, who made it clear she would not make
any sudden changes U.S. monetary policy.
    At home, the Canadian government released a budget that puts
the country on track to comfortably balance its budget in 2015,
or even sooner. Analysts said the release contained few
surprises and it had little impact on the Canadian dollar.
 
    "Anything in terms of the actual strategy within the budget
itself, it didn't really contain any major initiatives," said
Mazen Issa, macro strategist at TD Securities in Toronto.
    "Everyone was expecting (Finance Minister Jim) Flaherty to
announce that reaching a surplus in fiscal 2015-2016 was
definitely the goal, and that was indeed the case."
    The budget shows a deficit of C$2.9 billion ($2.6 billion)
in the 2014-15 fiscal year, up from the previous estimate of
C$5.5 billion.
    "The market shrugged its shoulders at the budget. Anything
of substance was leaked well ahead of time and the forecasts are
in line with what was expected," said Adam Button, currency
analyst at ForexLive in Montreal.
    The Canadian dollar ended the North American
session at C$1.1017 to the greenback, or 90.77 U.S. cents,
stronger than Monday's close of C$1.1055, or 90.46 U.S. cents.
    Investors had their attention on Yellen throughout the day,
as she gave her first public comments since becoming Fed chief
earlier this month. 
    Yellen said the U.S. central bank was on track to keep
reducing its economic stimulus, even though the job market
recovery was far from complete. 
    The Fed has reduced its asset purchase program twice since
late last year and now is buying $65 billion in bonds a month to
keep borrowing costs low and boost the economy.
    With little else on the domestic economic calendar this
week, the Canadian dollar could be searching for direction. The
currency has regained some ground since hitting a 4-1/2-year low
at the end of January, but analysts expect its ultimate path is
still likely downward.
    Increased risk appetite as stocks on Wall Street rallied
lent some support to the loonie on Tuesday, Button said.
    "Reports of the Canadian dollar's demise have been greatly
exaggerated, but at this point it's still a small bounce
compared to the losses we've had since the start of the year," 
Button said.
    Canadian government bond prices were mostly lower across the
maturity curve, with the two-year off 6 Canadian
cents to yield 1.013 percent, and the benchmark 10-year
 down 43-1/2 Canadian cents to yield 2.460 percent.
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