C$ holds steady as investors parse Yellen comments

February 13, 2014 Reuters 0 Comments

February 11, 2014

By Leah Schnurr

The Canadian dollar was little changed against the greenback on Tuesday as investors took in comments from new U.S. Federal Reserve Chair Janet Yellen, who said the labor market recovery is far from complete despite a drop in unemployment.

Still, Yellen also said the central bank expects to continue trimming its policy stimulus in measured steps amid broader improvements in the economy.

The Fed has reduced its asset purchase program twice since late last year and now buys $65 billion in bonds a month to keep borrowing costs low and boost the economy.

As Yellen takes the helm from former Fed Chairman Ben Bernanke, who ended his term last month, markets are looking for insight into how further reductions in stimulus are likely to handled by the Fed.

“The main takeaway from the prepared remarks is essentially a message that signals continuity from the Federal Reserve,” said Scott Smith, senior market analyst at Cambridge Mercantile Group in dCalgary.

“It confirms our view that with this continuity in Fed policy, it’ll reassure markets that the recovery in the U.S. is coming along as expected.”

Yellen was set to face questions from U.S. lawmakers later on Tuesday.

The Canadian dollar was at C$1.1057 to the greenback, or 90.44 U.S. cents, slightly weaker than Monday’s close of C$1.1055, or 90.46 U.S. cents.

On the home front, the Canadian government will present its 2014-15 budget later on Tuesday. The budget is expected to be lacking in any big new measures but to lay the groundwork for a return to a surplus in 2015.

The release of the budget is unlikely to spark much reaction in the loonie, Smith said. “We’re on some pretty strong ground in terms of our fiscal situation and that’s always been a shining light for Canada,” he added.

“We’ve already got the good news about the fiscal deficit baked into the loonie, so I don’t expect many surprises today with the actual release of the numbers, unless they deviate and come out with a big surprise from what (Finance Minister Jim) Flaherty has echoed to the market.”

With little else on the domestic economic calendar this week, the Canadian dollar could be searching for direction. The currency regained some ground last week after hitting a 4-1/2 year low, but analysts expect its ultimate path is still likely downward.

Canadian government bond prices were lower across the maturity curve, with the two-year off 3 Canadian cents to yield 0.998 percent, and the benchmark 10-year down 33-1/2 Canadian cents to yield 2.447 percent.