CANADA FX DEBT-C$ rebounds on crude rally; diverging central banks still eyed

Mon Feb 9, 2015 4:56pm EST
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(Updates with fresh comment, closing figures, new details)
    * Canadian dollar at C$1.2465 or 80.22 U.S. cents
    * Bond prices higher across the maturity curve

    By Solarina Ho
    TORONTO, Feb 9 (Reuters) - The Canadian dollar was stronger
against the greenback on Monday as oil prices rallied for a
third straight session and helped give the commodities-linked
currency a lift, in an otherwise quiet session.
    After retreating against the U.S. dollar on Friday on strong
U.S. jobs and wage data, the loonie was buoyed on Monday by an
OPEC forecast that demand for its oil would be greater than
expected this year as low prices hit non-OPEC producers more
quickly than previously expected. 
    A drop in the number of U.S. rigs drilling for oil to its
lowest since December 2011 also helped support crude prices.
Canada is a major oil exporting country, and its currency has
been especially sensitive to prices, which have plunged more
than 50 percent since last June.
    "The key levers for the Canadian dollar continue to
predominantly be oil prices in the short term on one side and on
the flip side, the U.S. economy," said
President Rahim Madhavji.
    "The overall story remains the divergence between the U.S.
and the Canadian economy ... The Bank of Canada is leveraged to
oil and the loonie is leveraged to both of those things
together. That's why it has been so volatile."
    The Canadian dollar finished the session at
C$1.2465 to the U.S. dollar, or 80.22 U.S. cents, firmer than
Friday's close C$1.2524, or 79.85 U.S. cents.
    Friday's robust U.S. payrolls data has raised expectations
that the Federal Reserve will raise interest rates as early as
mid-year. An increase would put the U.S. central bank on a
diametrically opposite path to that of the Bank of Canada, which
stunned markets last month with a rate cut and is now widely
expected to reduce rates again in March or April.
    "If we can comfortably stay for a while above $50 (a barrel)
... that maybe does cap the USD/CAD move to the upside, at least
until the Fed begins to hike (interest rates)," said Don
Mikolich, executive director of foreign exchange sales at CIBC
World Markets.
    With little market moving domestic data expected this week,
investors will remain focused on oil, as well as a speech by
Senior Deputy Governor Carolyn Wilkins, the first since the
bank's dramatic rate cut in January.
    Canadian government bond prices were higher across the
maturity curve, with the two-year climbing 2.5
Canadian cents to yield 0.485 percent and the benchmark 10-year
 rising 23 Canadian cents to yield 1.430 percent.

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