CANADA FX DEBT-C$ gives up post-Bank of Canada gains as oil slides
(Adds closing figures, Knightsbridge comment, details) * Canadian dollar at C$1.3250 or 75.47 U.S. cents * Bond prices mostly lower the maturity curve By Solarina Ho TORONTO, Sept 9 (Reuters) - The Canadian dollar gave up its rally against the greenback on Wednesday as U.S. crude oil prices fell on demand worries, overshadowing the Bank of Canada, which kept its key interest rate steady. The central bank, which had already cut rates twice this year by 25 basis points each time, held its target for the overnight rate steady at 0.5 percent, stating that the previous cuts were still stimulating the economy. Recent data has shown some improvements in the Canadian economy, helped by solid household spending and a firm U.S. recovery, as well as a weak Canadian dollar. "The tone of the Bank of Canada can quickly change if there's any further deterioration in oil prices, or if China stumbles again, or if we see any type of weakness in the Canadian economy," said Rahim Madhavji, president at KnightsbridgeFX.com, adding that the statement was optimistic compared to what he had expected. The Canadian dollar finished at C$1.3250 to the greenback, or 75.47 U.S. cents, weaker than the Bank of Canada's official close of C$1.3205, or 75.73 U.S. cents on Tuesday. The loonie, which was broadly weaker against nearly all of its key currency counterparts by the end of the session, had rallied as strong as C$1.3155 after the decision was announced. Markets had been pricing in a more than 30 percent chance of a 25 basis point interest rate cut in October ahead of Wednesday's decision. That has since been pared back to just over 20 percent. U.S. oil prices settled at $44.15 a barrel, down $1.79, or 3.9 percent, as ample supply stirred worries over demand in a lackluster economic environment, particularly out of key consumer, China. As a major exporter of the commodity, Canada is sensitive to crude price movements. Going forward, Madhavji said there were few catalysts to drive the Canadian dollar in the short term, and that the currency was expected to remain rangebound between C$1.3050 and C$1.3300. Canadian government bond prices were mostly lower across the maturity curve, with the two-year price slipping 5 Canadian cents to yield 0.459 percent and the benchmark 10-year falling 23 Canadian cents to yield 1.495 percent. The Canada-U.S. two-year bond spread narrowed to -28.2 basis points, while the 10-year spread narrowed to -70.0 basis points. (Reporting by Solarina Ho; Editing by Meredith Mazzilli)
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