CANADA FX DEBT-C$ firms as investors rethink Fed hike likelihood

Mon Oct 5, 2015 4:54pm EDT
 
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* Canadian dollar at C$1.3087 or 76.41 U.S. cents
    * Bond prices lower across the maturity curve

 (Adds quote, updates prices)
    OTTAWA, Oct 5 (Reuters) - The Canadian dollar strengthened
against the greenback on Monday as investors tried to gauge how
long the U.S. Federal Reserve will keep interest rates at
ultra-low levels following last week's disappointing U.S. jobs
report.
    Markets have been expecting the Fed to begin to raise rates
before the end of the year, but data on Friday that showed the
U.S. added 142,000 jobs last month, far below expectations,
raised some doubts. August's figures were revised sharply lower.
 
    That pressured the U.S. dollar to the benefit of the
Canadian dollar, though the greenback strengthened modestly
against a basket of currencies as risk appetite improved
through the session. Since hitting an 11-year low at the end of
September, the loonie has gained nearly 3 percent.
    "The price action that we're seeing in the markets today is
a little bit of exhaustion from the U.S. dollar bulls," said    
Scott Smith, senior market analyst at Cambridge Global Payments
in Toronto. 
    "With the back-to-back soft employment reports over August
and September out of the U.S., market participants are starting
the rethink that a liftoff from the Federal Reserve is possible
in 2015."
    Even so, Smith expects the Fed to raise rates at its
December meeting as long as recent market volatility does not
continue.
    The Canadian dollar ended the North American
trading session at C$1.3087 to the greenback, or 76.41 U.S.
cents, stronger than the Bank of Canada's official close of
C$1.3164, or 75.96 U.S. cents.
    Stable oil prices provided support for the Canadian dollar.
U.S. crude prices settled up 72 cents at $46.26 a barrel.
 
    Investors will turn their attention to Canadian domestic
data through the rest of the week, including the trade balance
on Tuesday and the jobs report on Friday.
    After two interest rate cuts earlier this year, the data is
unlikely to sway the Bank of Canada's policy stance of keeping 
rates on hold for now, said Smith. 
    Still, the Canadian dollar could test the C$1.33 to C$1.34
area if the data disappoints, he said.
    Canadian government bond prices were lower across the
maturity curve, with the two-year price down 1
Canadian cent to yield 0.51 percent and the benchmark 10-year
 falling 35 Canadian cents to yield 1.44 percent.
    The Canada-U.S. two-year bond spread was -9.90 basis points,
while the 10-year spread was -61.6 basis points.
    
    



    
    
    
    
  

 (Reporting by Leah Schnurr; Editing by Steve Orlofsky)