CANADA FX DEBT-C$ firms as oil prices rise, trade deficit narrows

Thu Sep 3, 2015 4:46pm EDT
 
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(Updates with strategist comment, closing figures, details)
    * Canadian dollar at C$1.3194 or 75.79 U.S. cents
    * Bond prices mostly lower across the maturity curve

    By Solarina Ho
    TORONTO, Sept 3 (Reuters) - The Canadian dollar strengthened
against most of its key counterparts, including the U.S. dollar,
on Thursday, supported by firmer oil prices and a
smaller-than-expected July trade deficit in Canada.
    Canada's export sector posted healthy growth for the second
month in a row in July, helping cut the country's trade deficit
to an eight-month low of C$593 million. This was significantly
less than the C$1.30 billion economists had forecast.
 
    Meanwhile, volatile crude prices rose alongside equity gains
on Wall Street but pulled back ahead of Friday's employment
report.
    Benjamin Reitzes, senior economist and foreign exchange
strategist at BMO Capital Markets, said the loonie did not react
much initially to the trade data, and instead rallied when oil
prices begin rising.
    "Oil's backed off, and the Canadian dollar has backed off a
little bit as well. It's maintained a little bit of those gains
though, maybe on the back of that better data for Canada," said
Reitzes.
    Following the data, markets were pricing in a lower
probability the Bank of Canada would cut interest rates by 25
basis points for a third time this year at its next meeting in
September. 
    The Canadian dollar finished at C$1.3194 to the
greenback, or 75.79 U.S. cents, stronger than the Bank of
Canada's official close of C$1.3271, or 75.35 U.S. cents on
Wednesday.
    The loonie traded between C$1.3135 and C$1.3289 during the
session.
    "There's still a lot of headwinds for the loonie though ...
but for now, it looks like the bank will likely be on hold,"
said Reitzes, adding that an eventual rate cut by the central
bank has not been ruled out yet due to the volatile price of
oil.
    Market participants are now awaiting U.S. and Canadian jobs
data for August, due at 8:30 a.m. EDT on Friday. The labor
market figures will be among the final pieces of economic data
released ahead of the Federal Reserve and Bank of Canada's next
rate decision this month.  
    Canadian government bond prices were mostly lower across the
maturity curve, with longer term bond prices falling. The
two-year price slipped 3.5 Canadian cent to yield
0.434 percent and the benchmark 10-year rose 8
Canadian cent to yield 1.463 percent.
    The Canada-U.S. two-year bond spread narrowed to -26.6 basis
points, while the 10-year spread narrowed to -69.9 basis points.
    
    

 (Reporting by Solarina Ho; Editing by Andrea Ricci and Cynthia
Osterman)