CANADA FX DEBT-C$ weakens on lower oil prices, pares losses after Fed decision

Wed Dec 16, 2015 3:10pm EST
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(Adds quote, updates after crude data, Fed rate hike)
    * Canadian dollar at C$1.3765, or 72.65 U.S. cents
    * Bond prices were mixed across the maturity curve

    By Fergal Smith
    TORONTO, Dec 16 (Reuters) - The Canadian dollar weakened to
a new 11-1/2-year low against its U.S. counterpart on Wednesday
as crude oil prices fell, but the currency recovered somewhat
after the U.S. Federal Reserve raised rates for the first time
in more than nine years.
    Oil prices headed back toward 11-year lows, pressured by
U.S. government data showing a huge build in crude inventories,
while the greenback was stronger against a basket of currencies
after the Fed news.  
    U.S. crude prices settled down 4.9 percent at $35.52
a barrel, while Brent crude lost 3.3 percent to $37.18.
    The U.S. dollar rallied initially following "a somewhat more
hawkish Fed than the markets had anticipated," according to
Derek Holt, vice president of economics at Scotiabank.
    At 2:59 p.m. EST (1959 GMT), the Canadian dollar 
was trading at C$1.3765 to the greenback, or 72.65 U.S. cents,
weaker than Tuesday's close of C$1.3738, or 72.79 U.S. cents.
    The currency's strongest level of the session was C$1.3729,
while its weakest level was C$1.3848, a fresh 11-1/2-year low.
    Its initial reaction on the Fed announcement was to weaken,
but it pared losses after failing to breach the session low.
    The Fed made clear the rate hike was a tentative beginning
to a "gradual" tightening cycle, and that in deciding its next
move it would put a premium on monitoring inflation, which
remains mired below target. 
    On Tuesday, weak manufacturing data weighed on the domestic
outlook, and Bank of Canada Governor Stephen Poloz signaled
clearly that markets should not expect him to match Fed rate
    Canadian government bond prices were mixed across the
maturity curve, with the two-year price down 4
Canadian cents to yield 0.538 percent and the benchmark 10-year
 rising 12 Canadian cents to yield 1.476 percent.
    The curve flattened in sympathy with U.S. Treasuries, as the
spread between the 2-year and 10-year yields narrowed by 3.2
basis points to 93.8 basis points, indicating outperformance for
longer-dated maturities.
    Foreign investors bought a net C$22.08 billion of Canadian
securities in October, mostly in bonds. The net total is up from
C$3.35 billion in September, Statistics Canada said.
    Canadian Prime Minister Justin Trudeau told reporters that
"having the United States economy pick up steam is ultimately
going to be good for Canada". 

 (Reporting by Fergal Smith; Editing by Lisa Von Ahn and Lisa