CANADA FX DEBT-C$ weakens amid reduced risk appetite
* Canadian dollar at C$1.3906 or 71.91 U.S. cents * Bond prices higher across the maturity curve TORONTO, Jan 4 (Reuters) - The Canadian dollar weakened against its U.S. counterpart, together with broader losses for commodity currencies after a 7-percent drop in Chinese shares triggered a flight to safe-haven assets. Chinese factory activity contracted for the 10th month running in December, adding to headwinds for commodity exporters such as Canada. A spike in Middle East tensions helped send crude oil prices higher, although overshadowed by the reduction in risk appetite. U.S. crude prices were up 1.54 percent to $37.61 a barrel, while Brent crude added 2.33 percent to $38.15. At 8:58 a.m. EST (1358 GMT), the Canadian dollar was trading at C$1.3906 to the greenback, or 71.91 U.S. cents, weaker than Thursday's close of C$1.3840, or 72.25 U.S. cents. The currency's strongest level of the session was C$1.3815, while its weakest level was C$1.3940. It had hit its weakest level in more than 11 years on Dec. 18 at C$1.4003. The loonie, as Canada's currency is colloquially known, weakened by 16 percent in 2015, its worst performance since the global financial crisis of 2008. 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. Canadian government bond prices were higher across the maturity curve on the flight to quality, with the two-year price up 3.5 Canadian cents to yield 0.461 percent and the benchmark 10-year rising 31 Canadian cents to yield 1.363 percent. The curve flattened, as the spread between the 2-year and 10-year yields narrowed by 1.7 basis points to 90.2 basis points, indicating outperformance for longer-dated maturities. The Canada-U.S. 10-year spread was 1.6 basis points narrower at -86.2 basis points as Treasuries outperformed. In data, the RBC manufacturing PMI for December is due for release at 9:30 a.m. EST (1430 GMT). November trade data is scheduled for Wednesday and the December employment report is awaited on Friday. (Reporting by Fergal Smith; Editing by Nick Zieminski)
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