CANADA FX DEBT-Loonie strengthens as investors gauge Fed timetable

September 25, 2013 Reuters 0 Comments

September 23, 2013

By: Leah Schnurr

TORONTO, (Reuters) – The Canadian dollar strengthened against the greenback on Monday as investors scrutinized policymakers’ comments to gauge how long the U.S. central bank will keep its economic stimulus program intact.

Influential New York Fed President William Dudley defended the Federal Reserve’s decision last week not to reduce the amount of bonds it buys each month, a move that surprised markets that had been looking for a small cut.

Dudley said that for now the Fed must push hard against threats to U.S. economic recovery. Separately, Atlanta Fed President Dennis Lockhart warned that America risked “losing its economic mojo”.

“The doves were flying today and we’re seeing a reaction in the Canadian dollar strength,” said Scott Smith, senior market analyst at Cambridge Mercantile Group in Calgary.

As the market gets more insight from policymakers and U.S. economic data, “it’s going to be a pendulum swinging back and forth between the taper-no taper trade,” Smith said.

The Canadian dollar ended at C$1.0285 to the U.S. dollar, or 97.23 U.S. cents, stronger than Friday’s session close of C$1.0299, or 97.10 U.S. cents.

A slew of Fed policymakers scheduled to speak throughout the week will likely continue to hold investors’ attention.

Domestic economic data could set the tone for the Canadian dollar on Tuesday with retail sales for July expected to rise, reversing a drop the previous month.

Still, the data is unlikely to be strong enough to change the view the Canadian economy is slogging along, Smith said.

“We’re not seeing anything that suggests we’re going to get anything great in terms of economic numbers,” he said. “The risk tomorrow will probably be to the downside for the loonie.”

Prices for Canadian government bonds were higher across the maturity curve, with the two-year bond up 3-1/2 Canadian cents to yield 1.210 percent. The benchmark 10-year bond rose 35 Canadian cents to yield 2.648 percent.