CANADA FX DEBT-C$ strengthens ahead of Fed statement

Tue Jul 28, 2015 5:02pm EDT
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(Updates with analyst comment, closing numbers)
    * Canadian dollar at C$1.2927 or 77.36 U.S. cents
    * Bond prices mostly lower across the maturity curve

    By Solarina Ho
    TORONTO, July 28 (Reuters) - The Canadian dollar firmed
against the greenback on Tuesday, touching its strongest level
in nearly two weeks as the price of crude, a major Canadian
export, steadied and investors positioned themselves ahead of
Wednesday's Federal Reserve interest rate decision.
    The U.S. central bank kicked off a two-day meeting and will
issue its policy statement on Wednesday. Some expect the Fed to
give a clearer signal as to when it will hike interest rates,
with many economists forecasting September.
    Slowing growth in China, the world's second-largest economy,
and soft commodity prices have spurred speculation, however,
that the Fed could delay a rate hike - the first since 2006 -
until next year.
    A U.S. rate hike this year would be in divergence to the
Bank of Canada, which has already cut rates by 25 basis points 
twice this year, and is expected to eventually drive the
Canadian dollar toward even weaker levels.
    The Canadian dollar finished at C$1.2927 to the
U.S. dollar, or 77.36 U.S. cents, stronger than the Bank of
Canada's official close of C$1.3045, or 76.66 U.S. cents on
Monday. The loonie traded between $1.2912 and C$1.3043 during
the session.
    "You've got the usual suspects ... You've got less pressure
from front-end yield spreads as Canadian yields have backed up a
little bit more than U.S. yields," said Bipan Rai, director of
foreign exchange strategy at CIBC World Markets, adding that the
next bout of weakness for the Canadian dollar could come after
the Fed statement.
    Gross domestic product data for May in Canada and for the
second quarter in the United States, to be released later this
week, will also be potential drivers.
    U.S. crude futures settled up 59 cents, or 1.2
percent, at $47.98 a barrel after touching its lowest level 
since March at $46.68. Brent futures settled down 17
cents, or 0.3 percent, at $53.30 after falling to $52.28
    Canadian government bond prices were mostly lower across the
maturity curve, with the two-year price down 4.5
Canadian cents to yield 0.443 percent and the benchmark 10-year
 falling 45 Canadian cents to yield 1.505 percent.
    The Canada-U.S. two-year bond spread narrowed to -22.7 basis
points, while the 10-year spread narrowed to -74.7 basis points.

 (Editing by Paul Simao and Matthew Lewis)