CANADA FX DEBT-C$ weakens, trims losses as oil recovered

Wed Nov 18, 2015 4:43pm EST
 
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* Canadian dollar at C$1.3318 or 75.09 U.S. cents
    * Bond prices mixed across the maturity curve

    By Fergal Smith
    TORONTO, Nov 18 (Reuters) - The Canadian dollar weakened
against the U.S. dollar on Wednesday, but trimmed some losses
following the release of the Federal Open Market Committee
(FOMC) minutes, helped by a partial recovery in crude oil
prices.
    It's "continuing the downward trend for the Canadian dollar,
largely in response to lower oil prices, but also growing
expectations that the Fed will raise interest rates next month,"
said Sal Guatieri, senior economist at BMO Capital Markets.
    Weighing on crude oil, an eighth straight week of stock
builds took U.S. crude stockpiles to near-record highs. 
    The Canadian dollar closed at C$1.3318 to the greenback, or
75.09 U.S. cents, weaker than the Bank of Canada's official
close on Tuesday of C$1.3308, or 75.14 U.S. cents.
    The currency's strongest level of the session was C$1.3299,
while its weakest level was C$1.3370.
    The FOMC minutes revealed that a solid core of Federal
Reserve officials rallied behind a possible December rate hike
at the central bank's last policy meeting, but central bankers
also debated evidence the U.S. economy's long-term potential may
have permanently shifted lower. 
    "I don't think the minutes moved the needle much on
expectations, added Guatieri, "but clearly the recent Fed
commentary seems to be leaning toward a move in December."
    Derek Holt, vice president of economics at Scotiabank, took
the minutes as "a bit stale," noting they pre-date the recent
employment and inflation reports, and suggesting that the Fed
"might be a little bit more hawkish now."    
    The number of oil wells drilled in Canada will shrink
further in 2016, the Canadian Association of Drilling
Contractors said on Wednesday, highlighting the impact of lower
crude prices on the oilfield service sector. 
    U.S. crude prices settled at $40.75 a barrel, up 0.20
percent, while Brent crude added 1.51 percent to
$44.23.    
    Adding to uncertainty over whether the new Liberal
government will ratify Canada's participation in the
Trans-Pacific Partnership agreement, Trade Minister Chrystia
Freeland told reporters that the government is reviewing a C$4.3
billion package designed to compensate farmers for losses they
might incur under the deal. 
    Canadian government bond prices were mixed across the
maturity curve, with the two-year price down 3.5
Canadian cents to yield 0.641 percent and the benchmark 10-year
 rising 6 Canadian cents to yield 1.651 percent.
    The Canada-U.S. two-year bond spread was 1 basis point wider
at -23.9 basis points, while the 10-year spread was 2 basis
points wider at -62.3 basis points, as Canadian government bonds
outperformed.

 (Reporting by Fergal Smith; Editing by Nick Zieminski)