CANADA FX DEBT-C$ falls to 5-1/2 year low as oil prices drop further

Mon Jan 12, 2015 10:02am EST
 
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* Canadian dollar at C$1.1916 or 83.92 U.S. cents
    * Oil prices continue to slide, U.S. dollar strong
    * Bond prices higher

    By Andrea Hopkins
    TORONTO, Jan 12 (Reuters) - The Canadian dollar hit a fresh
5-1/2 year low against the greenback on Monday as oil prices
continued to weaken, pushing the currency towards a key
psychological support level at C$1.20 to the U.S. dollar.
    Oil is a major Canadian export and crude prices showed no
sign of escaping their downward spiral. Meanwhile, the U.S.
dollar edged higher as investors who expect a stronger greenback
were given a chance to reload after it weakened on Friday after
data showed a surprise fall in U.S. wages in December.
 
    U.S. crude for February was down $1.13 at $47.23 per
barrel and the February Brent contract was down $1.31 at
$48.80 a barrel. Both hit their lowest since April 2009.
    Analysts at Goldman Sachs lowered their three-month price
forecast for Brent to $42 a barrel from $80 and cut their U.S.
crude forecast to $41 from $70, adding it would stay near $40
for most of the first half of 2015. 
    "All eyes are on oil prices, looking for stabilization, but
yet every day or every few sessions, it's reaching deeper lows,"
said Camilla Sutton, chief currency strategist at Scotiabank.
    "All in all the trend is a very strong one: a strong U.S.
dollar, with global investors really looking to add to long U.S.
 dollar positions."
    At 9:35 a.m. (1435 GMT) the Canadian dollar was at
C$1.1916 to the greenback, or 83.92 U.S. cents. That was much
weaker than Friday's finish of C$1.1866, or 84.27 U.S. cents,
and the currency's lowest point since May 2009.
    Sutton said analysts were looking to C$1.20 as a key level
where the Canadian dollar could find support. 
    "We're now talking about whole numbers and C$1.20 is the
next key level. It's a very important one because it is a big
psychological shift going from the teens up to C$1.20," she
said.
    Market watchers anticipating a speech on Tuesday by Bank of
Canada Deputy Governor Timothy Lane in which he was expected to
provide guidance on how oil prices are affecting the Canadian
economy. 
    "That's an important one because hopefully we'll get a
little bit more clarity on how the Bank of Canada is using new
oil prices in their modeling," Sutton said.
    The traditional wisdom is that lower oil prices hurt
Canada's western provinces, where oil and gas extraction
dominates the economy, but boost the fortunes of Ontario,
Canada's most populous province, which has a big manufacturing
and export industry, which benefits from both lower energy costs
and a lower Canadian dollar.     
    Canadian government bond prices were higher across the
maturity curve. The two-year rose 2.5 Canadian cents
to yield 0.934 percent and the benchmark 10-year 
climbed 14 Canadian cents to yield 1.641 percent.

 (Editing by Peter Galloway)