CANADA FX DEBT-C$ rises with oil, closing out worst year since 2008

Thu Dec 31, 2015 3:27pm EST
 
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(Adds analyst quote, adds details, updates prices)
    * Canadian dollar at C$1.3840 or 72.25 U.S. cents
    * Ends year down 16 percent on weak oil prices
    * Bond prices higher across the maturity curve

    By Fergal Smith
    TORONTO, Dec 31 (Reuters) - The Canadian dollar rose on
Thursday against its U.S. counterpart as crude oil prices
rallied, ending a year in which it weakened by 16 percent and
delivered its worst performance since the global financial
crisis of 2008.
    Corporate buying interest added to support for the currency
in thin markets, according to Don Mikolich, executive director,
foreign exchange sales at CIBC Capital Markets.
    Foreign exchange desks were expected to close early ahead of
the New Year's Day holiday, while the Bank of Canada also posted
its official closing rate early.
    The loonie, as Canada's currency is colloquially known, fell
16 percent to touch an 11-year low in 2015, pressured by deep
losses for crude oil prices and two rate cuts from the Bank of
Canada, while the U.S. Federal Reserve hiked rates for the first
time in more than nine years.    
    Oil prices rose on Thursday, but suffered a second year of
steep declines after a race to pump by Middle East crude
producers and U.S. shale oil drillers created an unprecedented
global glut that may take through 2016 to clear. 
    U.S. crude prices settled at $37.04 a barrel, up 1.20
percent, while Brent crude added 2.88 percent to
$37.51. 
    The Canadian dollar closed at C$1.3840 to the
greenback, or 72.25 U.S. cents, stronger than Wednesday's close
of C$1.3885, or 72.02 U.S. cents.
    The currency's strongest level of the session was C$1.3824,
while its weakest level was C$1.3903. It had hit its weakest
level in more than 11 years on Dec. 18 at C$1.4003.
    Bank of Canada Governor Poloz will speak on Jan. 7 in
Ottawa, the last scheduled appearance by a Bank of Canada
policymaker before the release of the interest rate announcement
and Monetary Policy Report on Jan. 20.
    The market has been leaning toward further rate cuts in the
face of depressed crude oil prices and loss of momentum for
growth.    
    "Data has been on the soft side," said Mikolich, but "a
weaker currency takes a little while to filter through the
economy." He does not foresee another rate cut.    
    Canadian government bond prices were higher across the
maturity curve, although lagging gains for Treasuries.
    The two-year price rose 1.5 Canadian cents to
yield 0.476 percent and the benchmark 10-year was up
8 Canadian cents to yield 1.393 percent.
    The Canada-U.S. two-year bond spread was 1.9 basis points
narrower at -57.6 basis points, while the 10-year spread was 2.7
basis points narrower at -87.6 basis points, trimming recent
outperformance for Canadian government bonds.   

 (Editing by Meredith Mazzilli and Nick Zieminski)