C$ dips on lack of clarity on Fed rate move

July 29, 2015 Reuters

By Solarina Ho

The Canadian dollar ended the session slightly weaker against its U.S. counterpart on Wednesday after the U.S. Federal Reserve stayed vague on the timing of its anticipated interest rate hike.

The loonie, which was a mid-performer against other major currencies, rallied briefly after the Fed issued its statement following a two-day policy meeting. But the currency soon reversed that gain to trade slightly weaker than Tuesday’s close.

The Fed said the U.S. economy and labor market were strengthening, leaving open the possibility of a rate hike in September. Despite the more positive language, however, the Fed didn’t offer a clear timetable of its plans, and said risks are “nearly balanced”.

“Obviously the Canadian dollar has seen some choppy price action in response to the statement from the Federal Reserve,” said Scott Smith, senior market analyst at Cambridge Global Payments in Calgary, adding that the Fed has left the door open on how it will interpret economic data in the coming months.

“They did their best at not tipping their hat to whether it’s going to be a September or December rate hike … There’s some fodder for the hawks, but also you can also look at some pieces in there with a dovish slant too. So I think it’s left markets in limbo to some extent.”

The Canadian dollar ended the session at C$1.2944 to the greenback, or 77.26 U.S. cents. That was weaker than the Bank of Canada’s official close of C$1.2927, or 77.36 U.S. cents, on Tuesday.

Shortly after the Fed statement, the loonie had strengthened to a session high of C$1.2860, or C$77.76 U.S. cents.

Overall, analysts expect the Canadian dollar to weaken further this year, particularly as the monetary policies of the U.S. and Canadian central banks diverge. The Bank of Canada has already cut rates twice this year, by 25 basis points each time.

Canadian government bond prices were mixed across the maturity curve, with the longer-term bonds falling. The two-year price fell 5 Canadian cents to yield 0.467 percent and the benchmark 10-year was down 13 Canadian cents to yield 1.52 percent.

The Canada-U.S. two-year bond spread narrowed to -24.1 basis points, while the 10-year spread widened to -76.9 basis points.

Read the full article here: http://www.reuters.com/article/2015/07/29/markets-currency-canada-idUSL1N1093DZ20150729