CANADA FX DEBT-C$ weakens as oil's losses offset greenback retreat

Mon Jul 27, 2015 5:08pm EDT
 
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(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)