CANADA FX DEBT-C$ rises against U.S. dollar on higher oil, slides vs euro

Thu Dec 3, 2015 5:01pm EST
 
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(Adds analyst quote, updates prices, updates details)
    * Canadian dollar at C$1.3338, or 74.97 U.S. cents
    * Bond prices much lower across a steeper maturity curve

    By Fergal Smith
    TORONTO, Dec 3 (Reuters) - The Canadian dollar firmed
against the greenback on Thursday, helped by a rebound in crude
oil prices, but fell sharply against the euro after the European
Central Bank eased policy less aggressively than some investors
had expected.
    Crude prices rallied ahead of an OPEC meeting on Friday, as
traders hedged their positions in case of a surprise outcome.
 
    Uncertainty as to what OPEC is going to do is "underwriting
the volatility in the Canadian dollar," according to Mark
Chandler, head of Canadian fixed income and currency strategy at
RBC Capital Markets.
    The European Central Bank cut its deposit rate to -0.3
percent from its existing -0.2 percent and extended its asset
purchase program to run until the end of March 2017.
 
    The Canadian dollar closed at C$1.3338 to the
greenback, or 74.97 U.S. cents, slightly stronger than
Wednesday's close of C$1.3349, or 74.91 U.S. cents.
    The currency rebounded from a nine-day low on Wednesday
after the Bank of Canada used less dovish language in its policy
statement than some expected. 
    Against the euro, the Canadian dollar tumbled to C$1.4602,
having touched C$1.4647, its weakest level in five weeks. 
    U.S. crude prices settled at $41.08 a barrel, up 2.85
percent, Brent crude added 3.53 percent to $43.99. 
    Canadian government bond prices were much lower across the
maturity curve, tracking weakness in German Bunds after the ECB
news.
    The two-year price was down 6.5 Canadian cents to
yield 0.656 percent and the benchmark 10-year 
tumbled C$1.02 to yield 1.627 percent.
    The curve steepened, as the spread between the 2-year and
10-year yields widened by 7.5 basis points to 97.1 basis points,
paring recent outperformance for longer-dated maturities.
    The Canada-U.S. 10-year spread was 3.2 basis points wider at
-69.5 basis points, as comments by Federal Reserve Chair Janet
Yellen did little to dampen expectations for a rate hike this
month, adding to pressure on Treasuries.    
    Canada's November employment report will be released on
Friday and is expected to show the economy lost 10,000 jobs
after jumping 44,400 in October, according to a Reuters poll.

 (Reporting by Fergal Smith; Editing by Bernadette Baum and
Jonathan Oatis)