CANADA FX DEBT-C$ strengthens as oil prices rebound, Brexit fears abate

Fri Jun 17, 2016 5:05pm EDT
 
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(Adds trader comment, speculative positioning; updates prices)
    * Canadian dollar settles at C$1.2878, or 77.65 U.S. cents
    * Currency lost 0.9 percent on week
    * Bond prices fall across the maturity curve

    By Alastair Sharp
    TORONTO, June 17 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Friday as a selloff
in oil and stocks ahead of Britain's EU membership vote next
week abated, although gains for the loonie were limited by
domestic data that showed slowing inflation.
    The currency lost 0.9 percent of its value against the
greenback over the course of the week, with much of the weakness
attributed to worries that Britain will leave the bloc, which
would send a shockwave through global financial markets. 
    "The Canadian dollar's not immune to the global impact of
Brexit, certainly we'll get caught up in some of the
volatility," said Blake Jespersen, managing director of foreign
exchange sales at BMO Capital Markets.
    "I think it's going to be a very close vote and it's really
too close to call at this point," he said.
    The British pound and bond yields rose on Friday as the
murder of a pro-EU British lawmaker a day earlier was seen
potentially tipping the scales back in favor of a vote to
remain.
    The Canadian dollar settled at C$1.2878 to the
greenback, or 77.65 U.S. cents, stronger than Thursday's close
of C$1.2961, or 77.15 U.S. cents.
    Oil prices jumped 4 percent, which Jespersen said was likely
also driven by a change in sentiment on the Brexit risk.
    "I don't think any one asset class is going to break away on
fundamentals until we get through this vote," he said. 
    Canadian government bond prices were lower across the
maturity curve, with the two-year price down 1.5
Canadian cent to yield 0.520 percent and the benchmark 10-year
 falling 13 Canadian cents to yield 1.121 percent.
    Canada's annual inflation slowed to 1.5 percent in May from 
1.7 percent in April, Statistics Canada said. The annual core
inflation rate was 2.1 percent, down from 2.2 percent in April.
    Still, core inflation remained above the Bank of Canada's
target of 2 percent, suggesting the central bank should not be
cutting interest rates, said Richard Gilhooly, head of rates
strategy at CIBC Capital Markets.
    "We think that's their inclination anyway because they don't
want to be getting into the negative rates scenario," Gilhooly
said.
    Speculators cut bullish bets on the loonie for the second
straight week, Commodity Futures Trading Commission data showed
on Friday. Net long Canadian dollar positions fell to 18,440
contracts in the week ended June 14 from 21,537 contracts in the
prior week.

 (Additional reporting by Fergal Smith; Editing by Bernadette
Baum and Leslie Adler)