* Ends at C$1.0173 to the US$, or 98.30 U.S. cents
* Touches 98.48 U.S. cents, highest level since Aug. 6
* US$ slides on belief Fed will ease monetary policy
* Bond prices flat to lower
(Updates to close, adds quote)
By Jennifer Kwan
TORONTO, Oct 5 (Reuters) - Canada's dollar rallied to a
two-month high on Tuesday as the greenback slid on speculation
the U.S. Federal Reserve would further ease monetary policy,
following a similar move by the Bank of Japan.
The Bank of Japan on Tuesday pledged to pump more funds
into the struggling economy and keep rates almost at zero in a
surprise move that helped to send commodity and equity markets
sharply higher. [MKTS/GLOB] [ID:nTOE69305D]
"What you're seeing here is the central bank going back and
buying assets in the market directly, and this has a way of
filtering out through other markets," said Larry Kantor, head
of research at Barclays Capital.
"It's sort of like a giant investor coming in with
incredible deep pockets, and can buy unlimited quantities of
The move added to the growing belief that the Fed will ease
monetary policy further, which helped to send the greenback
lower on Tuesday. [FRX/]
The key catalyst stoking expectations of U.S. quantitative
easing came last week when William Dudley, president of the
Federal Reserve of New York, said action to boost growth will
likely be warranted unless the economic outlook improves.
"It's very unlikely that the president of the New York Fed
is going to make such strong comments supporting further
quantitative easing unless they're really going to do it," said
Kantor. "It was his comments that made the difference here."
The Canadian currency CAD=D4 ended at C$1.0173 to the
U.S. dollar, or 98.30 U.S. cents, after rising as high as
C$1.0154, or 98.48 U.S. cents, its highest level since Aug. 6.
On Monday, the currency closed at C$1.0220 to the U.S. dollar,
or 97.85 U.S. cents.
The sliding greenback helped to lift the price of oil
CLc1, a key Canadian export, which rose toward $83 a barrel,
while gold prices XAU= touched a record above $1,340 an
ounce. [O/R] [GOL/]
Firas Askari, head of foreign exchange trading at BMO
Capital Markets, said a key short-term support level
strategists will be watching is around C$1.0108-C$1.010 to the
BONDS FLAT TO LOWER
Canadian government bond prices were largely flat to lower
on strength in equity markets. U.S. stocks rallied on Tuesday,
pushing the S&P index to its highest level since mid-May as
investors cheered encouraging economic data and new credit
easing steps by the Bank of Japan. [.N] Toronto stocks closed
at a two-year high. [.TO]
Bank of Canada Deputy Governor Tiff Macklem said Canada's
optimal inflation rate may be lower than the current 2 percent
target, but the existing system has worked so well the central
bank should be cautious about changing it. [.N]
His remarks did not give any hints on the outlook for the
currency or monetary policy, and had almost no market effect,
said BMO's Askari.
Markets were pricing in a 90.9 percent probability the
Bank of Canada would hold rates steady in October, according to
Reuters' calculation based on overnight index swaps, which
trade based on expectations for the central bank's policy rate.
The two-year bond CA2YT=RR was unchanged to yield 1.362
percent, while the 10-year bond CA10YT=RR ticked 11 Canadian
cents lower to yield 2.765 percent.
(Editing by Peter Galloway