C$ little changed as investors focus on Fed

TORONTO: The Canadian dollar was little changed against the greenback on Monday amid investor caution ahead of a Federal Reserve policy meeting later this week at which some market participants expect the Fed may announce it will begin to wind down its stimulus.

The Fed will release a statement at the end of its two-day meeting from Dec. 17-18. The US central bank is currently buying $85 billion a month in bonds, which has been a major driver of global markets this year.

A recent Reuters poll of primary dealers showed the Fed is expected to begin reducing its bond-buying program no later than March, though a few firms thought the Fed could announce a cutback as soon as this month.

"Our base case is that they lay the foundation for tapering in January," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto.

"The one big piece that's likely to hold them back from tapering is the disinflationary environment that the US economy is in."

Even so, with the recent budget deal in Washington and better-than-expected jobs data, the market seems to be increasingly turning toward the potential for the Fed to start winding down this week, said Sutton.

The Canadian dollar was at C$1.0590 to the greenback, or 94.43 US cents, modestly firmer than Monday's close of C$1.0595, or 94.38 US cents.

A faster timetable for the Fed is seen as a negative for the Canadian dollar as it is expected to reduce risk appetite and benefit the US currency.

In addition to uncertainty over the Fed's plans, the loonie has been hit by a less hawkish Bank of Canada and softer oil prices in recent weeks, all of which sent the currency to a 3-1/2-year low at the beginning of the month.

At home, data showed foreign investment in Canadian securities was roughly halved in October, with money market holdings slumping. The loonie saw little reaction to the report.

Canadian government bond prices were mixed across the maturity curve, with the two-year up 0.4 Canadian cent to yield 1.105 percent and the benchmark 10-year down 6 Canadian cents to yield 2.672 percent.