CANADA FX DEBT-C$ gains from risk appetite, awaits Bank of Canada

Tue Sep 8, 2015 4:56pm EDT
 
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(Adds strategist comment, updates prices)
    * Canadian dollar ends at C$1.3205, or 75.73 U.S. cents
    * Bond prices mixed across the maturity curve

    By Alastair Sharp
    TORONTO, Sept 8 (Reuters) - The Canadian dollar gained
against its U.S. counterpart on Tuesday amid a broad global
return to risk assets as investors bet on more stimulus out of
China, and ahead of a Bank of Canada interest rate decision on
Wednesday.
    "The commodity currencies did well right out of the gate.
It's reflective of general improvement in risk appetite," said
Mark Chandler, head of Canadian fixed income and currency
strategy at Royal Bank of Canada.
    U.S. crude slipped slightly, while the Brent global
benchmark jumped 4 percent and equity markets also
bounced higher.
    Chandler said the Bank of Canada will likely hold rates
steady after cutting twice so far this year, a position backed
up by decent domestic data in recent weeks.
    "The data was quite good, the GDP and the trade data and
even Friday's payroll report, so in the end, those three reports
were strong enough to get rid of the last residual doubts about
whether the bank might ease," he said, noting that the market
was pricing in a 10 percent chance of a cut.
    Most economists polled by Reuters last week said the bank   
would likely hold rates steady until 2017, although a quarter
said they could cut again on Wednesday. 
    Chandler said an October cut was still in play if China's
economy shows further signs of slowing and oil tracks lower, and
that the Canadian currency could weaken to C$1.36.
    The Canadian dollar ended the North American
trading session changing hands at C$1.3205 to the greenback, or
75.73 U.S. cents, stronger than Bank of Canada's official close
on Friday of C$1.3265, or 75.39 U.S. cents.
    The Canadian dollar closed on Monday at C$1.3306 but trading
was limited by public holidays in both Canada and the United
States, according to Thomson Reuters data.
    U.S. crude prices settled down 11 cents, or almost a quarter
of a percent, at $45.94 a barrel, while Brent crude added 4
percent to $49.52. 
    The Canadian dollar outperformed the euro, the yen, and the
Swiss franc, but slipped against the Australian and New Zealand
dollars, fellow commodity currencies most closely tied to China.
    Canadian government bond prices were mixed across the
maturity curve, with the two-year price up 1.5
Canadian cents to yield 0.434 percent and the benchmark 10-year
 falling 30 Canadian cents to yield 1.471 percent.
    The Canada-U.S. two-year bond spread was -30.3 basis points,
while the 10-year spread was -71.5 basis points. 
    

 (Editing by Frances Kerry and Lisa Shumaker)