Canadian dollar at more than 13-month high in Fed afterglow

TORONTO (Reuters) - The Canadian dollar popped to a more than 13-month high versus the U.S. dollar on Friday, building on momentum a day after the Federal Reserve finally pulled the trigger on a bold new plan to stimulate the U.S. economy.

The Fed’s decision to pump $40 billion into the economy each month until the country’s weak jobs market turns up bolstered the positive mood that has dominated markets since the European Central Bank announced its own plan to cut borrowing costs of struggling euro zone members.

“The market’s view is that the U.S. dollar will continue to come under pressure just given the stimulus going on in the U.S.,” said Blake Jespersen, managing director of foreign exchange sales at BMO Capital Markets.

“There’s been a lot of cash that’s been sitting on the sidelines for many many months now, so even if a small percentage of that comes back into the market you’re going to see a tremendous movement in some of these risk-based assets.”

At 8:06 a.m. EDT (1206 GMT), the Canadian dollar stood at C$0.9640 versus the greenback, or $1.0373, firmer than Thursday’s North American session close at C$0.9683, or C$1.0327.

From a technical standpoint, the Canadian dollar looks overbought, but given the broad risk rally it likely still has room to advance toward C$0.95, Jespersen said.

“The Canadian dollar is not even a leader right now ... it’s still trailing some of its other major peers, the Australian dollar, the New Zealand dollar by a fair margin, so I think there’s at least another cent in this trade.”

Analysts on Friday will also be watching domestic manufacturing sales data for July due at 8:30 a.m.

Meanwhile, euro zone finance ministers were meeting in Cyprus, hoping to build on progress made this month, following the plans announced by ECB President Mario Draghi and a German court’s green light this week for the euro zone’s new bailout fund.

Canadian government bond prices slipped across the curve as safe-haven assets continued to fall out of favor. The two-year bond was down 8 Canadian cents to yield 1.204 percent, while the benchmark 10-year bond tumbled 80 Canadian cents, yielding 1.965 percent.

Editing by Leslie Adler