CANADA FX DEBT-C$ drops as crude prices sink; jobs data in focus

Wed Feb 4, 2015 5:18pm EST
 
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(Adds comment, details, closing figures)
    * Canadian dollar at C$1.2565 or 79.59 U.S. cents
    * Bond prices higher across the maturity curve

    By Solarina Ho
    TORONTO, Feb 4 (Reuters) - The Canadian dollar gave back
recent gains against the U.S. dollar on Wednesday as record high
oil inventories in the United States sent oil prices plunging.
    Canada is a major exporter of oil and its currency has been
especially sensitive over the last seven months to crude prices,
which have fallen on too much supply and output, and not enough
demand.
    The huge weekly build in crude supplies sent U.S. crude for
a 9 percent dive, pushing the Canadian dollar down more than 1.5
cents during the session. The loonie had jumped earlier this
week after oil rebounded some 19 percent over four sessions,
with some investors hopeful that the rise signaled the oil
market had finally hit bottom. Wednesday's abrupt turnaround
raised doubts. 
    "That correlation that we've been seeing between crude oil
and the Canadian dollar asserted itself and applied pressure on
the (currency)," said Mazen Issa, macro strategist at TD
Securities. 
    The Canadian dollar closed at C$1.2565 to the
greenback, or 79.59 U.S. cents, softer than Tuesday's close of
C$1.2396, or 80.67 U.S. cents.
    The loonie is expected to weaken further in the coming
months, back toward near six-year lows, with the economic damage
caused by cheap oil likely to trigger another Bank of Canada
interest rate cut, according to a Reuters poll of analysts.
  
    "The expectation is (the U.S. dollar) higher from here, even
by the end of the week," Issa said.
    The currency could find more direction from Canadian trade
data for December, due on Thursday, but markets will be more
focused on January employment figures from the United States and
Canada on Friday.
    Expectations are for stronger U.S. job numbers and weaker
Canadian ones, which could be a "double whammy" for the loonie
on Friday, Issa said.
    Canadian government bond prices were higher across the
maturity curve, with the two-year rising 6.5 Canadian
cents to yield 0.399 percent, and the benchmark 10-year
 gaining 41 Canadian cents to yield 1.270 percent.

 (Reporting by Solarina Ho; Editing by Peter Galloway)