CANADA FX DEBT-C$ weaker, outlook dim as low oil rate hike divergence bite

Tue Aug 4, 2015 4:26pm EDT
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(Rewrites throughout with currency moves, closing figures,
strategist comment)
    * Canadian dollar at C$1.3180, or 75.87 U.S. cents
    * Bond prices rise across the maturity curve

    By Alastair Sharp
    TORONTO, Aug 4 (Reuters) - The Canadian dollar weakened
versus the U.S. dollar on Tuesday, extending last week's slump
to levels last seen in 2004, and an uncertain outlook for oil,
limp global demand and divergent central bank policy make
further weakness likely.
    The loonie, as Canada's currency is colloquially known, was
hurt by comments from a U.S. Federal Reserve official that
supported a rate hike there in September, in sharp contrast with
two Bank of Canada cuts so far this year. 
    It was also affected by weak data out of China on the
weekend, and a report on Monday that showed global factory
activity remained muted in July. 
    "That tends to correlate reasonably well with global growth,
and that is exacerbating the imbalance between supply and demand
in commodity markets, and that's affecting commodity
currencies," said Bipan Rai, director of foreign exchange
strategy at CIBC World Markets.
    He said it could prove difficult for the loonie to
strengthen through the March 2009 high of C$1.3065 it breached
last week, and risks more poor economic data pushing it towards
    "If you do see any sort of movement to those (stronger)
levels there's just too much interest in the market right now to
buy U.S. dollars so we'd expect any sort of correction to be
shallow," he said.
    Domestic trade data due out on Wednesday is expected to show
a deficit of C$2.8 billion in June. 
    The loonie has lost around 9 percent of its value since
mid-May on slumping commodity prices and the interest rate cuts.
    The Canadian dollar ended the session changing
hands at C$1.3180 to the greenback, or 75.87 U.S. cents. It
breached C$1.32 during the session.
    That was much weaker than the Bank of Canada's official
Friday close of C$1.3080, or 76.45 U.S. cents.
    The bank did not record a close on Monday, a public holiday
in much of Canada, while Thomson Reuters data showed a close of
C$1.3156, or 76.01 U.S. cents.
    Canadian government bond prices were higher across the
maturity curve, with the two-year price up half a
Canadian cent to yield 0.405 percent and the benchmark 10-year
 rose 14.5 Canadian cents to yield 1.425 percent.
    The Canada-U.S. two-year bond spread was -33.1 basis points,
while the 10-year spread was -79.8 basis points.
    Crude oil  prices recovered from multi-month
lows, although concern lingered over high global production and
the economic outlook in China. 

 (Editing by James Dalgleish and Grant McCool)