CANADA FX DEBT-C$ falls as China's surprise devaluation hits oil price

Tue Aug 11, 2015 10:31am EDT
 
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* Canadian dollar at C$1.3109 or 76.28 U.S. cents
    * Bond prices higher across the maturity curve

    By Solarina Ho
    TORONTO, Aug 11 (Reuters) - The Canadian dollar dropped
against its U.S. counterpart on Tuesday, reversing the previous
session's hefty gains, as oil prices took a beating following
China's surprise move to devalue its currency.
    The yuan had its biggest decline in more than two decades
after the Chinese central bank devalued it by nearly 2 percent
overnight in China's latest attempt to bolster its economy
following a string of poor economic data. 
    China is one of the world's largest natural resource
consumers, and the move triggered a selloff in dollar-priced
commodities, such as crude, which is a key Canadian export.
    Benjamin Reitzes, senior economist and foreign exchange
strategist at BMO Capital Markets, said that with oil near
multi-year lows, "it's not good news for the Canadian dollar,
that's for sure". 
    "It's a big move from China's perspective, but a 2 percent
move in the currency is not a big one from a global perspective.
You get 2 percent moves in most floating currencies on a
somewhat regular basis, especially these days."
    At 9:58 a.m. ET (1358 GMT), the Canadian dollar was
 at C$1.3109 to the greenback, or 76.28 U.S. cents, weaker than
the Bank of Canada's official close of C$1.3001, or 76.92 U.S.
cents.
    It has tumbled more than 20 percent in a little over a year.
It traded between C$1.2996 and C$1.3109 on Tuesday, but was well
off the 2004 lows above C$1.32 hit last week.
    U.S. crude was down 3.56 percent at $43.36 a barrel,
while Brent crude lost 2.66 percent to $49.07. 
    A slowdown in China's economy, which is still expected to
grow by around 7 percent this year, has been a key driver for 
oil's plunge over the past year along with rising global
supplies. 
    It is too early to speculate on the longer-term impact of
the yuan devaluation, Reitzes said, adding that it should not
derail the U.S. Federal Reserve's plan to tighten monetary
policy. Some market participants, however, may view the move as
a trigger for a currency war, which could further strengthen the
greenback, he added.
    Canadian government bond prices were higher across the
maturity curve, with the two-year price up 6 Canadian
cents to yield 0.43 percent and the benchmark 10-year
 rising 68 Canadian cents to yield 1.402 percent.
    The Canada-U.S. two-year bond spread narrowed to -24.3 basis
points, while the 10-year spread narrowed to -74.8 basis points.

 (Reporting by Solarina Ho; Editing by Peter Galloway)