CANADA FX DEBT-C$ drops with oil price but Fed minutes cushion the fall
(Updates with Fed minutes, analyst's comment, closing figures) * Canadian dollar at C$1.3110 or 76.28 U.S. cents * Bond prices higher across the maturity curve By Solarina Ho TORONTO, Aug 19 (Reuters) - The Canadian dollar finished weaker against the U.S. dollar on Wednesday as crude prices sank to multiyear lows, but it pared early losses after minutes from the U.S. Federal Reserve's July policy meeting gave no clear indication of when the central bank intends to raise interest rates. The greenback slid as market participants who had anticipated a September move by the Fed pulled back those bets. A U.S. rate hike sometime this year is still widely expected, however, and would be the first increase in nearly a decade. Some have wondered whether concerns about an economic slowdown in China and the latest slump in commodity prices, which could lower inflation, will affect the Fed's timing. The Canadian dollar ended the session at C$1.3110 to the greenback, or 76.28 U.S. cents, weaker than the Bank of Canada's official close of C$1.3056, or 76.59 U.S. cents. The loonie swung widely between C$1.3024 and C$1.3180 during the session, weakening sharply as the price of oil, a significant Canadian export, plunged to 6-1/2 year lows. U.S. crude settled below C$42 a barrel. "The Canadian dollar was weakening coming into the oil moves - that pushed us to the weakest we've seen in a couple of weeks. It reversed really hard on the FOMC (Fed) minutes," said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York. "I still think USD/CAD is going higher, but it's clear there's a lot of selling pressure when you get above C$1.3150." Anderson expects the loonie to weaken to C$1.34 eventually, but stop short of C$1.35. He forecasts that the Fed will raise rates in September or at least send a clear signal that it will do so in October. Investors expect the loonie to stay within its current trading range ahead of Friday's release of Canadian inflation figures for July and retail sales data for June. Disappointing numbers will likely send the currency through C$1.32, Anderson said. Canadian government bond prices were higher across the maturity curve, with the two-year up 9 Canadian cents to yield 0.370 percent and the benchmark 10-year popping 75 Canadian cents higher to yield 1.318 percent. The Canada-U.S. two-year bond spread narrowed to -29.1 basis points, while the 10-year spread widened to -81.1 basis points. (Reporting by Solarina Ho; Editing by Peter Galloway)
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