CANADA FX DEBT-C$ weakens to a nearly 2-month low as oil falls

Fri Jul 22, 2016 4:52pm EDT
 
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* Canadian dollar ended at C$1.3146, or 76.07 U.S. cents
    * C$ touched its weakest since May 24 at C$1.3185
    * Bond prices slightly higher across the maturity curve

    By Fergal Smith
    TORONTO, July 22 (Reuters) - The commodity-linked Canadian
dollar fell to a nearly two-month low against its U.S.
counterpart on Friday as stronger-than-expected domestic data
was offset by lower oil prices.
    Oil fell after the fourth weekly rise in the U.S. oil rig
count added to worries about a global crude glut. U.S. crude oil
futures settled 56 cents lower at $44.19 a barrel. 
    "Today's story is more about the commodity complex and the
weakness in its performance dragging the loonie lower," said
Scott Smith, senior market analyst at Cambridge Global Payments,
who added that "economic data was quite robust out of Canada
this morning."
    Canadian retail sales rose by 0.2 percent in May from April
to hit a record C$44.28 billion, while sales excluding autos
jumped 0.9 percent. 
    Canada's annual inflation rate held at 1.5 percent in June,
slightly firmer than analysts had forecast. The core inflation
rate which is closely watched by the Bank of Canada, remained at
2.1 percent. 
    "The surprise is that the core inflation hasn't been weaker
than it has, and the longer we stay over 2 percent as the
economy does do better then it does bring the Bank of Canada
back on the horizon as likely to tighten and not ease," said
Richard Gilhooly, head of rates strategy at CIBC Capital
Markets.
    The Canadian dollar ended at C$1.3146 to the
greenback, or 76.07 U.S. cents, weaker than Thursday's close of
C$1.3086, or 76.42 U.S. cents.
    The currency's strongest level of the session was C$1.3055,
while it touched its weakest since May 24 at C$1.3185.
    Speculators increased bullish bets on the loonie for the
fourth straight week, Commodity Futures Trading Commission data
showed. Net long Canadian dollar positions rose to 22,068
contracts in the week ended July 19 from 17,175 contracts in the
prior week.
    There is room for some reduction in net long Canadian dollar
positions should oil continue lower or U.S. Federal Reserve
officials turn more hawkish, Cambridge Global's Smith said.
    Canadian government bond prices were slightly higher across
the maturity curve, with the two-year price up 0.5
Canadian cent to yield 0.565 percent and the benchmark 10-year
 rising 5 Canadian cents to yield 1.097 percent.
    On Thursday, the 10-year yield touched its highest in nearly
four weeks at 1.174 percent.

 (Reporting by Fergal Smith; Editing by Meredith Mazzilli and
Jeffrey Hodgson)