Canada’s dollar fell from a three-month high as traders bet the currency had moved too far, too fast after slower U.S. growth prompted the Federal Reserve to unexpectedly maintain monetary stimulus yesterday.
The currency erased gains versus its U.S. peer after breaching its 200-day moving average for a second day, a key test for some traders on whether the run of strength has momentum. U.S. government debt rallied yesterday as the Fed maintained its $85 billion in monthly asset purchases, sending borrowing costs down and widening the interest-rate gap between Canadian and U.S. two-year government debt to the most since January. Economists in a Bloomberg survey had forecast the Fed to cut $5 billion from its purchases.
“The Fed move does shift things and it will change our outlook for the Canadian dollar a little bit higher longer-term — it will basically push out our forecast for a lower Canadian dollar,” Greg T. Moore, a currency strategist at Toronto-Dominion Bank, said by phone from Toronto. “But I think the severity of the move may not be much more than we’ve already seen.”
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