CANADA FX DEBT-C$ stronger as oil gains; Fed rate call in focus

Tue Jan 27, 2015 4:51pm EST
 
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* Canadian dollar at C$1.2404 or 80.62 U.S. cents
    * Bond prices higher across the maturity curve

    By Alastair Sharp
    TORONTO, Jan 27 (Reuters) - The Canadian dollar gained
against the U.S. dollar on Tuesday as oil jumped and weak U.S.
data hurt the greenback ahead of a Federal Reserve meeting at
which policymakers may signal they'll hold off on raising
interest rates for longer than currently expected.
    The loonie, as Canada's currency is colloquially known,
weakened sharply last week after the Bank of Canada shocked
markets with a rate cut. The currency has struggled for months
as the price of oil has slumped.
    The Canadian dollar ended the session at C$1.2404
to the greenback, or 80.62 U.S. cents, stronger than Monday's
finish of C$1.2464, or 80.23 U.S. cents, the weakest close in
more than 5-1/2 years.
    Oil  rose a little on Tuesday, in part due to
the weaker U.S. currency in which it is priced. The dollar fell
on weaker-than-expected U.S. durable goods orders for December.
    "The weaker-than-expected durables was one of the main
impetuses for pulling back from what was going to be new highs
(in dollar/Canada) overnight," said Don Mikolich, executive
director of foreign exchange sales at CIBC World Markets.
    Given that central banks globally have moved to spur growth,
the Fed could delay plans to hike this year, strategists said.
    "The talk on a lot of desks now is, 'is the Fed really able
to continue along their desired path?'," said Brad Schruder,
director of foreign exchange sales at BMO Capital Markets.
    CIBC's Mikolich said: "When we hear from the Fed tomorrow
they may not have the same sense of urgency around rate hikes."
    He added that the Canadian currency likely won't see
sustained support from rising crude prices until they breach the
$50 a barrel level, as that is the average price the Bank of
Canada is assuming in its models. 
    The U.S. benchmark was last at $46.23 a barrel. 
    The Bank of Canada shocked markets last week when it cut
interest rates by 25 basis points to 0.75 percent. Markets are
now pricing in a 62 percent chance of another rate cut in March,
when the central bank makes its next policy decision. 
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 8.5 Canadian
cents to yield 0.493 percent and the benchmark 10-year
 rising 25 Canadian cents to yield 1.420 percent.

 (Additional reporting by Solarina Ho; Editing by Peter Galloway
and James Dalgleish)