CANADA FX DEBT-C$ weakens as oil slips, Bank of Canada eyed

Mon Jul 11, 2016 5:23pm EDT
 
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(Adds trader comment, details on support for greenback; updates
prices to close)
    * Canadian dollar settles at C$1.3121, or 76.21 U.S. cents
    * Bond prices lower across the maturity curve

    By Alastair Sharp
    TORONTO, July 11 (Reuters) - The Canadian dollar weakened
sharply against its U.S. counterpart on Monday as oil prices
fell and global equities rose after Japan's prime minister won
re-election and ordered fresh stimulus.
    Friday's bumper U.S. jobs data continued to lend support to
the greenback, and to bets that the U.S. Federal Reserve would
tighten credit before the end of the year.
    Canadian monetary policy will be back in focus this week,
with the Bank of Canada due to decide on interest rates and
update its outlook on Wednesday, following last week's weak jobs
and trade data.
    "I think the market is overpricing the potential for a rate
cut in Canada and underpricing the potential for a rate hike in
the States," said Don Mikolich, executive director for foreign
exchange sales at CIBC Capital Markets. 
    Canada's economy shed jobs in June, and other data from last
week also pointed to tepid activity. Canadian housing starts
rose much more than expected in June from May, data showed on
Monday. 
    "It doesn't have that same feeling of inevitable improvement
(as the U.S. economy)," Mikolich said. "We muddle along and the
currency is reflecting that."
    The Canadian dollar settled at C$1.3121 to the
greenback, or 76.21 U.S. cents, much weaker than the Bank of
Canada's official Friday close of C$1.3040, or 76.91 U.S. cents.
    The currency's strongest level of the session was C$1.3030,
while its weakest level was C$1.3140.
    Oil prices fell to a two-month low on extended selling after
the market's break below a key technical support level last week
due to oversupply fears. 
    Canadian government bond prices were lower across the
maturity curve, with the two-year price down 1.5
Canadian cents to yield 0.473 percent and the benchmark 10-year
 falling 20 Canadian cents to yield 0.981 percent.
    The Canada-U.S. two-year bond spread was -18.4 basis points,
while the 10-year spread was -44.9 basis points.
    The Canadian dollar was underperforming most European
currencies and the Australian and New Zealand dollars, but was
stronger against the yen.
    Japanese Prime Minister Shinzo Abe ordered a new round of
fiscal stimulus spending after a crushing election victory over
the weekend. 
    

 (Reporting by Alastair Sharp; Editing by Nick Zieminski and
Richard Chang)