Canada’s Dollar Little Changed Ahead of Fed’s Rate Decision

By Chris Fournier

Dec. 16 (Bloomberg) -- Canada’s currency was little changed ahead of a decision by the Federal Reserve on whether to cut U.S. interest rates to the lowest level on record.

“It looks like we’re in wait and see mode,” said Stewart Hall, a market strategist at HSBC Securities in Toronto. “Canada’s currency has been trading more as a function of the liquidity trade that has spawned a big bid in the U.S. dollar, and which we’ve seen unwind fairly dramatically.”

The Canadian dollar rose 0.26 percent to C$1.2304 per U.S. dollar at 8:08 a.m. in Toronto, from C$1.2337 yesterday. One Canadian dollar buys 81.27 U.S. cents.

Since closing at C$1.2962 on Nov. 20, the weakest in more than four years, the Canadian dollar has appreciated 5.2 percent. HSBC predicts the Canadian dollar will strengthen to C$1.20 against the U.S. dollar by year-end.

Futures contracts showed a 64 percent chance the U.S. central bank will cut its 1 percent target rate for overnight bank loans to 0.25 percent. The rest of the bets are for a half- percentage point reduction. The Chairman Ben S. Bernanke and the Federal Open Market Committee, which began meeting in Washington yesterday, is expected to release its statement around 2:15 p.m.

“The real intrigue is to be found in the post-meeting text, and what Bernanke tends to suggest about where the Fed goes beyond merely cutting rates,” Hall said.

Canada’s central bank cut the target rate for overnight loans between commercial banks by three-quarters of a percentage point to 1.5 percent, the lowest since 1958.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net