* C$ at C$1.0273 vs US$, or 97.34 U.S. cents
* Fed expected to slow bond purchases, halt mid-2014
* Poloz maintains Bank of Canada policy
* Bond prices fall sharply across maturity curve
By Solarina Ho
TORONTO, June 19 The Canadian dollar fell
sharply against a broadly stronger U.S. dollar on Wednesday and
bond prices slumped after the Federal Reserve expressed optimism
about the U.S. economy and labor market.
Fed chief Ben Bernanke also said the Fed is expected to slow
the pace of bond purchases later this year and bring them to a
halt around mid-2014. The comments weighed on stocks and pushed
bond yields to a 15-month high.
"Clearly Bernanke was the dominant force ... the Fed's
become incrementally more optimistic about the outlook in terms
of just shading down some of the downside risk," said David
Tulk, chief Canada macro strategist at TD Securities.
"The taper talk really was in play, and we see that follow
through. It's very positive for the U.S. dollar and by
association, CAD just gets caught in the crossfire like every
other currency today ... It's more a broad-brush U.S. dollar
The Canadian dollar, which still outperformed all
major currencies except for the Swedish Kronor,
finished its North American session at C$1.0273 to the
greenback, or 97.34 U.S. cents. This was firmly weaker than
Tuesday's North American close of C$1.0210, or 97.94 U.S. cents.
U.S. Treasuries prices slid following Bernanke's comments,
which confirmed worries the days of low interest rates might
come to an end sooner than expected.
Canadian government debt tracked the United States, with
prices sliding across the maturity curve. The two-year bond
gave back 10 Canadian cents to yield 1.164 percent,
while the benchmark 10-year bond tumbled 71 Canadian
cents to its highest yield since March 2012, at 2.245 percent.
New Bank of Canada governor Stephen Poloz also spoke on
Wednesday in his first official speech as head of the bank, but
the speech, which did not shed new light on his policy stance,
did little to influence markets.
"He stuck to the script from his testimony earlier," said
Tulk. "I think he very much wants to use the monetary policy
report on July 17 to really leave his impression on the market
in terms of how he sees the economy unfolding."
Poloz said the central bank cannot rely on its usual models
to assess the economy because of unexpectedly high levels of
uncertainty, with the biggest risks coming from abroad.
"Our broad takeaway is that this speech further reinforces
our prolonged (rate) pause forecast into 2015," said Scotiabank'
economists Derek Holt and Dov Zigler in a research note.