CANADA FX DEBT-Loonie follows price of oil lower

Mon Dec 22, 2014 9:58am EST
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* Canadian dollar at C$1.1628 or 85.99 U.S. cents
    * Bond prices mixed across the maturity curve

    By Leah Schnurr
    OTTAWA, Dec 22 (Reuters) - The Canadian dollar weakened
against the greenback on Monday as it followed oil prices lower
but it was not expected to fall out of its recent trading range
in this holiday-shortened week.
    The Canadian dollar has been hit hard in recent months by
the plunge in oil prices and is down 8.7 percent for the year,
putting it on track for its weakest year since 2008. 
    Oil, which is a major export for Canada, was down 84 cents
at $56.29 a barrel after Saudi Arabia indicated it could
increase output. 
    "We're definitely seeing an ebb to the markets," said Scott
Smith, senior market analyst at Cambridge Mercantile Group in
    "We're likely to see U.S. dollar-Canadian dollar trade
within a fairly tight range. I'd expect some volatility as
volume starts to dry up, so you could have some knee jerk
reactions in the markets."
    The Canadian dollar was at C$1.1628 to the
greenback, or 85.99 U.S. cents, weaker than Friday's close of
C$1.1608, or 86.15 U.S. cents.
    With just Canada's gross domestic product report for October
on Tuesday the only major economic data on tap this week, the
loonie is likely to be capped at the high C$1.15s, unless the
GDP figures surprise the market, Smith said.
    Economic growth is forecast to have edged up 0.1 percent in
October, slower than the 0.4 percent pace the month before.
    Analysts see the Canadian dollar's weakness continuing into
2015. Even if oil prices recover, the currency will be pressured
by a hike in U.S. interest rates, which is expected to come next
year and will most likely be implemented before any move on
rates by the Bank of Canada.
    "With the Federal Reserve warning of a possible rate hike as
early as April of next year, we're likely to see U.S.
dollar-Canadian trend higher," Smith said.
    Canadian government bond prices were mixed across the
maturity curve, with the two-year down 2 Canadian
cents to yield 1.021 percent and the benchmark 10-year
 up 8 Canadian cents to yield 1.805 percent.

 (Editing by Peter Galloway)