CANADA FX DEBT-C$ drops to weakest close in more than a decade

Wed Jul 22, 2015 5:13pm EDT
 
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(Updates throughout with details on intraday lows and closing
levels, and strategist's comments)
    * Canadian dollar finishes at C$1.3037, or 76.70 U.S. cents
    * Weakest close since 2004
    * Intraday low of C$1.3053, or 76.61 U.S. cents
    * Weakest intraday level since March 2009
    * Bond prices mixed across the maturity curve

    By Solarina Ho
    TORONTO, July 22 (Reuters) - The Canadian dollar tested
multiyear lows against the greenback on Wednesday, dropping to
its weakest close in more than a decade as the U.S. dollar
firmed and oil prices remained under pressure.
    The loonie took its cue from the U.S. dollar, which
rebounded from its biggest fall in a month after data showed
U.S. home resales rose to an 8-1/2-year peak.
 
    Prices for oil, a key Canadian export, failed to hold on to
Tuesday's gains, with U.S. crude settling below the $50 a barrel
mark at $49.19. The drop came after data showed U.S. crude
inventories rose last week, while the stronger U.S. dollar added
to the pressure. 
    The Canadian dollar finished at C$1.3037, or 76.70
U.S. cents, sharply weaker than the Bank of Canada's official
close of C$1.2948, or 77.23 U.S. cents on Tuesday, and the
currency's weakest close since early September 2004.
    The loonie retreated as far as C$1.3053 against the U.S.
dollar, or 76.61 U.S. cents, during the session, its weakest
intraday level since March 9, 2009, when it hit C$1.3066, or
76.53 U.S. cents.
    "I would characterize it as testing the decade lows.
Technically, that C$1.3065 level is fairly significant because
it (was) reached during the financial crisis in 2008/09. To get
above there, we probably do need to something significant," said
Greg Moore, senior currency strategist at Royal Bank of Canada.
"Nevertheless, we have moved fairly far today."
    Many market participants expect the loonie to weaken further
against the U.S. dollar this year, particularly as the U.S.
Federal Reserve prepares to resume raising interest rates,
possibly in September, while Canadian rates are expected to stay
low.
    "The clearest risk to me is the Fed meeting next week," said
Moore. "If they really want to potentially hike in the fall this
year, they're going to have to start signaling that next week."
    Looking ahead, Canadian retail sales figures for May are due
at 8:30 a.m. EDT (1230 GMT) on Thursday. Economists are
expecting an increase of 0.5 percent. 
    Canadian government bond prices were mixed across the
maturity curve, with the two-year price down 1.5
Canadian cents to yield 0.434 percent and the benchmark 10-year
 rising 17 Canadian cents to yield 1.544 percent.
    The Canada-U.S. two-year bond spread was -27.6 basis points,
while the 10-year spread was -78.5 basis points.

 (Reporting by Solarina Ho; Editing by Peter Galloway)