CANADA FX DEBT-C$ tumbles on rising Fed hike risk, oil slide

Wed Nov 4, 2015 4:50pm EST
 
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(Adds strategist comment, details; updates prices)
    * Canadian dollar at C$1.3157, or 76.01 U.S. cents
    * Bond prices fall across the maturity curve

    By Fergal Smith
    TORONTO, Nov 4 (Reuters) - The Canadian dollar retreated
against the U.S. dollar on Wednesday, as hawkish comments from
Federal Reserve Chair Janet Yellen and a pullback in crude oil
overshadowed a narrowing in Canada's trade deficit.
    The Canadian dollar ended the day at C$1.3157 to
the greenback, or 76.01 U.S. cents, weaker than Tuesday's
official close of C$1.3052, or 76.62 U.S. cents. Tuesday's close
was the currency's strongest in two weeks.
    "It's taken its cue from a stronger U.S. dollar and also
bearish crude stats that we received this morning," said Bipan
Rai, director of foreign exchange strategy at CIBC World
Markets.
    U.S. crude oil settled down 3.3 percent at $46.32 a
barrel, unwinding much of Tuesday's sharp rally, on rising U.S.
crude inventories and pressure by an internal OPEC document
published by Reuters that showed weaker demand in the next few
years for oil from the producer group. 
    Brent crude oil fell 3.5 percent at $48.75 a barrel.
 
    The Fed's Yellen pointed to a possible December interest
rate "liftoff" during congressional testimony and a slow path of
increases from then on to nurture an economic recovery.
 
    Justin Trudeau, Canada's new  prime minister, named a
slimmed-down Cabinet, including rookie politician and corporate
executive Bill Morneau as finance minister. 
    Trudeau has already laid out the major planks of his
economic plan, which includes running three years of budget
deficits and boosting infrastructure spending in a bid to
stimulate Canada's flagging economy.
    Rai suggested that expansive fiscal policy in Canada "takes
a little bit of pressure off the Bank of Canada to add to easier
policy at this point."       
    Canada's trade gap narrowed more than expected, to C$1.73
billion, helped by a modest pick up in exports including
consumer goods and energy products. 
    Canadian government bond prices were lower across the
maturity curve, with the two-year price falling 5.5
Canadian cents to yield 0.628 percent. The benchmark 10-year
 fell 18 Canadian cents to yield 1.635 percent.
    The Canada-U.S. two-year bond spread was 1.7 basis points
more negative at -18.8 basis points as Treasuries underperformed
at the front of the curve on rising risk of a December rate hike
from the Fed, while the 10-year spread was 0.8 of a basis point
less negative at -59.6 basis points.

 (Additional reporting by Alastair Sharp; Editing by W Simon and
Chris Reese)