CANADA FX DEBT-C$ weakens as oil falls, growth fears renewed

Tue Jul 5, 2016 4:37pm EDT
 
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(Adds current trader comment, poll; updates prices to close)
    * Canadian dollar ends at C$1.3016, or 76.83 U.S. cents
    * Bond prices higher across the maturity curve

    By Alastair Sharp
    TORONTO, July 5 (Reuters) - The Canadian dollar weakened
against a broadly stronger U.S. counterpart on Tuesday, with
uncertainty about the resiliency of global economic growth in
the face of a slower China and divided Europe weighing on the
risk-sensitive loonie.
    The Canadian dollar is expected to weaken further over the
coming months as Britain's vote to leave the European Union
boosts the U.S. dollar and with oil prices set to remain weak, a
Reuters poll found. 
    "The U.S. is the king of the hill now, for the next little
bit, where at least there's some certainty around the direction
economically there," said Don Mikolich, executive director for
foreign exchange sales at CIBC Capital Markets. 
    The Canadian currency, nicknamed the loonie, has fallen 0.7
percent since Britain's decision on June 23 to exit the EU and
is down 3 percent since May 3 when it hit an 11-month high of
C$1.2458.
    It settled at C$1.3016 to the greenback, or 76.83 U.S. cents
on Tuesday, weaker than the Bank of Canada's official Monday
close of C$1.2856, or 77.78 U.S. cents.
    The retreat followed five sessions of gains that had lifted
the currency to a 10-day high on Monday, when U.S. markets were
closed. Canadian markets were closed on Friday.
    Overnight data from China showed that while the country's
growing services sector saw activity rise to an 11-month high in
June, a composite measure of activity including manufacturing
fell to a four-month low. 
    Canadian government bond prices were higher across the
maturity curve, with the two-year price up 5 Canadian
cents to yield 0.493 percent and the benchmark 10-year
 jumping 49 Canadian cents to yield 0.994 percent.
    The 10-year yield slumped as low as 0.961 percent during the
session, its lowest since Feb. 11.
    The equivalent U.S. bond yield hit an all-time low, as soft
data from China added to worries about so-called Brexit.
 
    Prices for oil, a major Canadian export, fell on concerns
that demand could be dented by slower economic growth. 
    Canada's central bank, widely expected to hold rates steady
next week, said on Monday that domestic business sentiment
remained subdued in the second quarter, weighed by cheaper oil
and modest domestic demand. 
    Corporate U.S. dollar buyers should hedge payables due in
that currency, while greenback sellers should wait to hedge
receivables, analysts at Scotiabank said in a note.

 (Reporting by Alastair Sharp; Editing by Chizu Nomiyama and
Sandra Maler)