Canadian dollar stronger

The Canadian dollar ended stronger against the greenback on Friday as investors bid up the commodity-linked currency a day after Federal Reserve Chair nominee Janet Yellen defended the US central bank's ongoing monetary stimulus. At a hearing on Thursday on her nomination to head the Fed, Yellen defended the US central bank's steps to spur economic growth and called efforts to boost hiring an "imperative".
The result in currency markets has been "the calming of the taper tantrum," said Karl Schamotta, director of foreign exchange strategy at Cambridge Mercantile Group, referring to the previously rising expectations that the Fed would signal a reduction in the asset-buying program soon. Helping the Canadian currency, manufacturing sales jumped in September to their highest since June 2012 on strength in the auto and food industries, an encouraging sign the hard-hit sector may be rebounding.
"While it is certainly positive and it helps to indicate a pivot toward more sustainable growth, the path there will be fraught with many perils," Cambridge's Schamotta said, pointing out that predictions for upcoming data are broadly pessimistic. "We definitely have underlying bearish sentiment percolating across the landscape right now so there's a lot of vulnerability in the Canadian dollar, a lot of people waiting to jump in past the C$1.05 mark," he said.
The currency ended the day at C$1.0447 to the greenback, or 95.72 US cents, compared to Thursday's close of C$1.0468, or 95.53 US cents. It gained 0.3 percent this week. Schamotta predicted the loonie would trade between C$1.0425 and C$1.0535 next week. The remarks from Yellen were seen by markets as offering reassurance that the Fed's economic stimulus efforts will continue, but her comments also contained few surprises.
"Overall, the take away is it signalled continuity at the Fed," said Greg Moore, FX strategist at TD Securities in Toronto. "(Yellen) did sound a little bit more dovish, but she sounded almost exactly like Bernanke in a lot of what she was saying, so a new Fed chair that is essentially an extension of Bernanke policy doesn't signal that much for QE policy."
While continued accommodative policy from the Fed should support the loonie, uncertainty over the timing of the wind-down of stimulus is keeping the currency in a tight range for now, said Dean Popplewell, chief currency strategist at OANDA in Toronto. A longer timetable for reducing quantitative easing could boost risk-appetite in the market, ultimately benefiting the Canadian dollar.
"Central banks have a stranglehold on forex markets currently and I do not see that situation changing any time soon," Popplewell said. Canadian bond yields were mostly lower across the maturity curve, with the two-year bond off 2 and a half Canadian cents to yield 1.119 percent, while the benchmark 10-year bond slipped 8 Canadian cents to yield 2.565 percent.