CANADA FX DEBT-C$ weakens as oil's losses offset greenback retreat
(Updates throughout with details, BMO strategist's comment, closing figures and settlements) * Canadian dollar at C$1.3045, or 76.66 U.S. cents * Bond prices higher across the maturity curve By Solarina Ho TORONTO, July 27 (Reuters) - The Canadian dollar eased against its U.S. counterpart on Monday, hurt by another drop in the price of a crude oil, a major Canadian export, that offset a broadly softer U.S. dollar ahead of the U.S. Federal Reserve's policy meeting this week. Crude prices tumbled to four-month lows following an 8.5 percent drop in Chinese equities, the Shanghai market's biggest one-day plunge in eight years. The rout spurred oil market concern about China's economic health, particularly as evidence of a global crude supply glut mounted. U.S. crude closed down 75 cents, or 1.6 percent, at $47.39 a barrel. It fell below $47 post-settlement, the lowest since late March. Brent crude oil settled down $1.15, or 2 percent, at $53.47 a barrel. "As commodities continue to weaken, the story for the Canadian dollar looks very, very grim," said Brad Schruder, director of foreign exchange at BMO Capital Markets. "The loonie's floating in a marsh of weak economic data and weak future prospects across the board." The Canadian dollar ended at C$1.3045 to the greenback, or 76.66 U.S. cents, weaker than the Bank of Canada's official close of C$1.3035, or 76.72 U.S. cents, on Friday. Markets were also awaiting the Fed's interest rate decision later this week, with many expecting it to lay the groundwork for an increase later this year, possibly as early as September. A hike would stand in marked contrast to the Bank of Canada's 25 basis point rate cut earlier this month, the second cut this year. Any concerns the Fed may express about the greenback being too strong could take some of the steam out of the U.S. dollar and temporarily lift the loonie, however. Another driver for the Canadian dollar is likely to be this Friday's Canadian gross domestic product figures for May. "The ball really got rolling on this latest round of Canadian dollar weakness after last month's (GDP) print," Schruder said. "That instantly shifted the focus to the overall health of the Canadian economy, not just necessarily the impact that lower oil was having." Canadian government bond prices were higher across the maturity curve, with the two-year price up 2.5 Canadian cents to yield 0.419 percent and the benchmark 10-year rising 29 Canadian cents to yield 1.456 percent. Canada-U.S. spreads narrowed, with the two-year bond at -23.5 basis points and the 10-year at -77 basis points. (Reporting by Solarina Ho; Editing by Lisa Von Ahn; and Peter Galloway)
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