CANADA FX DEBT-C$ weakens to 3-week low as Brexit shockwaves weigh

Mon Jun 27, 2016 4:32pm EDT
 
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(Adds analyst quote, updates prices)
    * Canadian dollar ends at C$1.3073, or 76.49 U.S. cents
    * Bond prices much higher across the maturity curve

    By Fergal Smith
    TORONTO, June 27 (Reuters) - The Canadian dollar weakened to
a three-week low against its U.S. counterpart on Monday as
Britain's vote to leave the European Union sent new shockwaves
through financial markets, weighing on Canada's risk-sensitive
currency.    
    Global stocks and oil prices fell as market participants
absorbed the shock of Brexit. U.S. crude oil futures 
settled $1.31 lower at $46.33 a barrel.  
    "More blood-letting in the market and as such the Canadian
dollar is tracking the movement of oil and other risk-correlated
assets," said Scott Smith, senior market analyst at Cambridge
Global Payments.
    Losses for the loonie came after it fell 1.7 percent on
Friday, its largest drop in 17 months.    
     Canada's commodity-linked economy will suffer weaker growth
because of Britain's vote to leave the EU, which has put the
prospect of Canadian interest rate cuts back on the table.
 
    Overnight index swaps implied a nearly one-third chance of a
Bank of Canada rate cut this year after having been priced for
no change in policy before Brexit. 
    The Canadian dollar ended at C$1.3073 to the
greenback, or 76.49 U.S. cents, weaker than Friday's close of
C$1.2999, or 76.93 U.S. cents.
    The currency's strongest level of the session was C$1.2951,
while it hit its weakest since June 2 at C$1.3120.
    Smith expects the loonie to weaken further with
risk-correlated assets in the near-term, targeting C$1.3300.
    Speculators cut bullish bets on the loonie for the third
straight week, Commodity Futures Trading Commission data showed
on Friday. Net long Canadian dollar positions tumbled to 2,595
contracts in the week ended June 21 from 18,440 contracts in
prior week. 
    Canadian government bond prices were higher across the
maturity curve in sympathy with Treasuries as safe-haven assets
rallied.
    The two-year price rose 9.5 Canadian cents to
yield 0.491 percent and the benchmark 10-year 
climbed 78 Canadian cents to yield 1.081 percent.
    The Canada-U.S. 10-year spread shifted 4.1 basis points to
-37.5 basis points, its smallest gap since May 3, as Treasuries
outperformed.

 (Reporting by Fergal Smith; Editing by Andrew Hay)