CANADA FX DEBT-C$ weaker ahead of Bank of Canada, oil fall weighs

Tue Mar 8, 2016 4:41pm EST
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(Adds trader comment, updates prices)
    * Canadian dollar at C$1.3416, or 74.54 U.S. cents
    * Bond prices higher across maturity curve

    By Alastair Sharp
    TORONTO, March 8 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart and a string of other currencies on
Tuesday as market participants reacted to weak Chinese data and
lower oil prices and braced for a Bank of Canada policy decision
on Wednesday.
    It settled at C$1.3416 to the greenback, or 74.54
U.S. cents, much weaker than Monday's close of C$1.3276, or
75.32 U.S. cents.
    The currency has rebounded sharply since hitting a 12-year
low at C$1.4689 on Jan. 20, when the central bank surprised many
traders by not cutting rates.
    Given the recent appreciation and with another rate decision
pending, some traders are positioning for another wrinkle.
    "There's a little nervousness about (Governor Stephen) Poloz
doing something that the market's not expecting," said David
Bradley, director of foreign exchange trading at Scotiabank.
    "I don't think there were too many people who thought we'd
see it trade on a C$1.32 handle ahead of the Bank of Canada."
    The central bank is expected to hold interest rates at 0.50
percent as it waits to see what impact the government's expected
spending measures will have on the economy. The measures will be
presented with the March 22 budget. 
    The loonie's recent rally also coincided with rising prices
for crude oil, a major Canadian export.  
    But oil prices fell 3 percent on Tuesday, retreating after
six days of gains for benchmark Brent crude, as Goldman Sachs
suggested the rally was unsustainable and analysts predicted
U.S. stockpiles reached record highs again last week. 
    Global stocks also slipped, weighing on the risk-sensitive
commodity currency, while China's exports tumbled the most in
six years, although that decline was impacted by the timing of
the Lunar Year holidays.  
    The Canadian currency's strongest level of the session was
C$1.3281, while its weakest was C$1.3425.
    It had touched on Monday its strongest since Nov. 19 at
    It also fell sharply against the Japanese yen and Swiss
franc, and was weaker versus the euro.
    Canadian government bond prices rose across the maturity
curve on Tuesday, with the two-year price up 7.5
Canadian cents to yield 0.496 percent and the benchmark 10-year
 rising 83 Canadian cents to yield 1.185 percent.
    The spread between the 2-year and 10-year yields narrowed by
5 basis points to 68.9 basis points.
    On Monday, it touched its widest since Feb. 5 at 73.9 basis

 (Additional reporting by Fergal Smith; Editing by Meredith