CANADA FX DEBT-C$ hits weakest in nearly a month as greenback surges

Tue Mar 10, 2015 4:47pm EDT
 
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* Canadian dollar at C$1.2680, or 78.86 U.S. cents
    * Bond prices higher across the maturity curve

    By Alastair Sharp
    TORONTO, March 10 (Reuters) - The Canadian dollar fell to
its weakest level in nearly a month against a soaring greenback
on Tuesday as confusion about the Bank of Canada's interest-rate
stance contrasted with growing confidence the U.S. Federal
Reserve will start lifting rates by midyear.
    Canada is a major oil exporter and its currency was hurt by
the plunge in oil prices and then by the Bank of Canada's shock
January rate cut response. Many strategists acknowledge being
unsure of the bank's next move. 
    Don Mikolich, director of foreign exchange sales at CIBC
World Markets, said CIBC has trimmed its forecast for the loonie
to C$1.27 to the greenback from C$1.34 for coming quarters on
the assumption the central bank's decision to hold rates steady
last week would hold until economic recovery makes a rate hike
feasible again.
    That could be some time coming as the bank has warned that
slumping oil prices will feed into weaker economic data for
months. The market is bracing for the loss of 5,000 jobs in the
February employment report due on Friday.
    "How bad will bad be?" Mikolich asked. "Everybody is
expecting the employment data on Friday to be the negative
numbers the bank was alluding to."
    The currency ended the North American session at
C$1.2680 to the greenback, or 78.86 U.S. cents, much weaker than
Monday's close of C$1.2596, or 79.39 U.S. cents. Tuesday's close
was just off the day's low of C$1.2689, or 78.80 U.S. cents, its
weakest since Feb. 11.
    Meanwhile, another stellar set of U.S. jobs data last Friday
and a subsequent chorus of hawkish Fed policymaker comments have
pushed the greenback to multiyear highs against the euro and
yen. 
    Oversupply, weak demand and expectations of a Fed rate hike
have continued to hobble oil prices. 
    "It's very difficult to see the Canadian dollar recovering
significantly anytime soon without some pretty material things
changing," said Shaun Osborne, chief currency strategist at TD
Securities. "That is to say the economy picks up significantly
or we see a big turnaround in crude prices that gives the
currency a psychological lift at least." 
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 1.5 Canadian
cents to yield 0.592 percent and the benchmark 10-year
 up 37 Canadian cents to yield 1.534 percent.

 (Reporting by Alastair Sharp Editing by W Simon and Peter
Galloway)