CANADA FX DEBT-C$ weakens, dragged by oil; central bank in focus

Mon Oct 19, 2015 9:38am EDT
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* Canadian dollar at C$1.2935, or 77.31 U.S. cents
    * Bond prices higher across the maturity curve

    By Alastair Sharp
    TORONTO, Oct 19 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Monday as oil prices weighed and
market strategists looked past a federal election to a central
bank meeting later in the week.
    Canadians look set to vote for political change on Monday,
but a possible ouster of the ruling Conservatives could prove
less of a drag on the commodity-linked currency, than any words
of warning from the Bank of Canada on Wednesday. 
    "Canada is quite fiscally sound, and I think the debate the
market is having with itself is much more about the direction of
monetary policy than it is about government and fiscal policy,"
said Adam Cole, global head of FX strategy RBC Capital Markets.
    At 9:09 a.m. ET (1309 GMT), the Canadian dollar was
trading at C$1.2935 to the greenback, or 77.31 U.S. cents,
weaker than Friday's close of C$1.2911, or 77.45 U.S. cents.
    It was also underperforming most of its key currency
    U.S. crude prices were down 2.37 percent to $46.14 a
barrel, while Brent crude lost 2.54 percent to
    The Canadian currency has strengthened considerably this
month, in line with a broader move towards riskier assets. 
    With the market expecting rates to be held steady through
the middle of next year, Cole said the risk is that the bank is
more worried than the market about the effect low crude prices
are having on capital spending plans.
    "The potential for re-pricing of rate-cut risk going forward
is negative for the currency without this big prop of major risk
appetite holding up," Cole said.
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 1.5 Canadian
cents to yield 0.530 percent and the benchmark 10-year
 was up 8 Canadian cents to yield 1.460 percent.

 (Editing by Bernadette Baum)