CANADA FX DEBT-C$ rebounds as volatile crude prices jump

Thu Feb 5, 2015 4:38pm EST
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* Canadian dollar at C$1.2424 or 80.49 U.S. cents
    * Bond prices mixed across the maturity curve

    By Solarina Ho
    TORONTO, Feb 5 (Reuters) - The commodities-linked Canadian
dollar strengthened more than a cent against its U.S.
counterpart on Thursday as crude prices rebounded from the
previous session's plunge and remained the currency's primary
    Rising violence in Libya, including a raid by gunmen on an
oil field, and monetary easing by China that could lift the
demand for crude, helped prop prices up some four percent.
    "It's all oil," said Benjamin Reitzes, senior economist and
foreign exchange strategist at BMO Capital Markets. "The
Canadian dollar, and almost all Canadian variables - financial
or economic - are at the mercy of oil prices at the moment."
    Reitzes said the crude production trend is still upwards and
until that trend reverses course, a sustained rally would be
difficult. Canada is a major oil exporter and the currency has
closely tracked the crude market in recent months. BMO is
expecting oil at around $57 a barrel by the end of the year.
    The Canadian dollar, which has see-sawed to the
tune of oil this week, ended the session at C$1.2424 to the
greenback, or 80.49 U.S. cents, stronger than Wednesday's close
of C$1.2565, 79.59 U.S. cents.
    The market was also digesting data that showed Canada's
trade deficit in December was significantly smaller than had
been expected by analysts. Still, it nearly doubled to C$649
million, hurt by cheap crude. 
    Non-energy exports, a main focus point for the Bank of
Canada, rebounded but in volume terms, exports declined during
the fourth quarter while imports increased, said Charles
St-Arnaud, senior economist and strategist at Nomura Securities
in London.
    "Mathematically, it means you'll have a drag on growth
coming from exports in Q4 and quite a substantial one," said
    Investors will next focus on January employment reports from
the United States and Canada on Friday.
    "Everyone's looking for a bad number, any surprise positive
will be good for Canada," said BMO's Reitzes. He said that
another big move in oil prices will likely overshadow the
economic data.
    Canadian government bond prices were mixed, with longer term
securities falling across the maturity curve. The two-year
 was off 7.5 Canadian cents to yield 0.433 percent and
the benchmark 10-year was down 90 Canadian cents to
yield 1.358 percent.

 (Reporting by Solarina Ho; Editing by Peter Galloway and Grant