Bloomberg News

Canadian Dollar Depreciates as Fed to Let Asset Purchases End

June 22, 2011

June 22 (Bloomberg) -- Canada’s dollar stayed weaker versus its U.S. counterpart after the Federal Reserve said it would let asset purchases end and maintain record monetary stimulus, citing sluggish U.S. economic growth.

The Canadian currency, nicknamed the loonie, underperformed 11 of its 16 most-traded peers. The Fed maintained its vow to keep interest rates low for an “extended period” after a second round of Treasury purchases under quantitative easing failed to improve the economy. The U.S. is Canada’s largest trading partner.

“The fact that QE2 will roll off as anticipated, with no mention of QE3 is probably not good for the loonie,” said Firas Askari, head currency trader in Toronto at Bank of Montreal’s BMO Capital unit. “The Canadian dollar will make a rebound with general firmness in the equity markets.”

The Canadian currency depreciated 0.3 percent to 97.39 cents per U.S. dollar at 5 p.m. in Toronto, from 97.11 yesterday. The loonie touched 97.01 today, the strongest level since June 15, before weakening as much as 0.4 percent before the Fed Chairman Ben S. Bernanke’s announcement. One Canadian dollar purchases $1.0268.

Government bonds were little changed, with Canada’s benchmark 10-year note yielding 2.97 percent. The two-year note yielded 1.51 percent.

The Fed said after a two-day meeting that it will maintain record monetary stimulus to support a flagging economic recovery after completing a $600 billion bond-purchase program this month. There was no mention of additional versions of the program, the second round of quantitative easing.

Rate Unchanged

The U.S. central bank kept its benchmark interest rate at zero to 0.25 percent, where it’s been since December 2008 to support the economy. The decision matched forecast of 86 of the 87 economists in a Bloomberg News survey. One analyst predicted a gain to 0.5 percent.

“It hardly paints a great picture for Canada’s largest trading partner,” said David Watt, senior currency strategist at Royal Bank of Canada’s RBC Capital unit in Toronto. “There were no signs of more easing, though there was no sign of any tightening soon. They are trying to keep a stiff upper lip about a second-half recovery.”

The unemployment rate in the U.S. unexpectedly climbed to 9.1 percent in May and payrolls grew at the slowest pace in eight months.

Bank of Canada Governor Mark Carney reiterated his forecast that the economy will accelerate in the second half of the year after slowing due to temporary factors.

Carney also repeated that Canadian exports are likely to be hurt by persistent strength in the Canadian dollar, according to the text of his opening statement to the Senate Banking Committee today.

--Editors: Dave Liedtka, Greg Storey

To contact the reporters on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net; Frederic Tomesco in Montreal at tomesco@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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