CANADA FX DEBT-C$ weakens to 6-day low as commodity currencies retreat

Tue Jul 19, 2016 4:36pm EDT
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(Adds strategist comment; updates prices to close)
    * Canadian dollar settles at C$1.3028, or 76.76 U.S. cents
    * Loonie hits its weakest since July 13 at C$1.3053
    * Bond prices slightly higher across the maturity curve
    * 10-year yield touches highest level since June 27 at 1.150

    By Alastair Sharp
    TORONTO, July 19 (Reuters) - The Canadian dollar weakened to
a nearly one-week low against its U.S. counterpart on Tuesday,
tracking losses for fellow commodity currencies as oil prices
fell and a recent improvement in risk appetite stalled.
    World shares dipped for only the second time in nine days,
sapped by the drop in oil prices and by data that showed
Britain's vote to quit the European Union has done serious
damage to German economic confidence. 
    "There's definitely a sense of exhaustion in terms of what
we've seen coming out of the Brexit (vote)," said Eric Theoret,
a currency strategist at Scotiabank.
    Officials and policymakers had stoked fears about the
economic risks of leaving the economic bloc ahead of the vote,
Theoret said, and then had to backtrack when the leave camp won.
    "If we look at the sequence, it was fear-mongering, panic,
policymakers stepping in to say 'we've got this, we can provide
support,' and the market made new all-time highs in terms of
equities," he said. 
    Brexit is expected to dominate a meeting of Group of 20
finance ministers in China this week, a Canadian official said
on Monday. 
    Oil prices fell on Tuesday amid concerns over a global
supply glut. 
    The commodity-linked Australian and New Zealand dollars fell
as investors ramped up bets that central banks in Australia and
New Zealand could ease monetary policy as early as next month.
    The risk-sensitive Canadian dollar settled at
C$1.3028 to the greenback, or 76.76 U.S. cents, weaker than
Monday's close of C$1.2937, or 77.30 U.S. cents.
    The currency's strongest level of the session was C$1.294,
and it also hit its weakest level since July 13, at C$1.3053.
    Last week, the loonie rose 0.8 percent as a somewhat
optimistic update from the Bank of Canada lowered expectations
for an interest rate cut.   
    The implied probability of a rate cut this year has fallen
below 10 percent, overnight index swaps data showed, down from
above 30 percent in the week after the Brexit vote. 
    Canadian government bond prices rose marginally across the
maturity curve, with the two-year price up 1 Canadian
cent to yield 0.574 percent and the benchmark 10-year
 rising 22 Canadian cents to yield 1.077 percent.
    Earlier in the session the 10-year yield touched its highest
level since June 27 at 1.150 percent, extending its rebound from
a five-month low on July 11 at 0.935 percent.
    Canadian retail sales data for May and inflation data for
June are due on Friday.

 (Additional reporting by Fergal Smith; Editing by Meredith
Mazzilli and Leslie Adler)