CANADA FX DEBT-C$ hits weakest since March as lower oil, rate divergence weigh

Mon Jul 25, 2016 5:22pm EDT
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* Canadian dollar settles at C$1.3220, or 75.64 U.S. cents
    * Bond prices mostly lower across curve; longer-dated debt

    By Alastair Sharp
    TORONTO, July 25 (Reuters) - The commodity-linked Canadian
dollar on Monday hit its weakest level against its U.S.
counterpart since March, hurt by a slide in oil prices and the
prospect that interest rates will rise faster in the United
States than Canada.  
    Traders and strategists said the Canadian currency could
face further selling pressure in the short term, especially if
the U.S. Federal Reserve strikes a hawkish tone later this week.
    "This market seems quite comfortable being long the U.S.
(dollar), certainly against Canada," said Jack Spitz, managing
director of foreign exchange at National Bank Financial.
    "Oil's lower, equities are lower, interest rates are
diverging between the U.S. and Canada, so from a number of
different metrics the market is potentially poised to take the
U.S. dollar higher against the Canadian dollar," he added.
    The Canadian dollar settled at C$1.3220 to the
greenback, or 75.64 U.S. cents, weaker than the Bank of Canada's
official Friday close of C$1.3146, or 76.07 U.S. cents.
    The price of oil, a major Canadian export, fell more than 2
percent, with U.S. crude hitting a three-month low, on rising
concerns that a global glut of crude and refined products would
pressure markets. 
    "Fundamentals, sentiment, and technical factors favor" the
U.S. dollar over the Canadian currency, Scotiabank strategists
wrote in a note, adding they expect to see a "decisively neutral
Bank of Canada and a tentatively, cautiously hawkish Fed".
    The Fed's policy committee holds a two-day meeting on
Tuesday and Wednesday this week, with a statement due at its
    Both the Scotiabank analysts and National's Spitz pointed to
technical resistance around C$1.3315 for the currency's next
    The currency's strongest level of the session was C$1.3125,
while at one point it touched C$1.3243, its weakest since March
    The Canadian dollar also lost ground against the Japanese
yen, British pound, euro, and Australian and New Zealand
    Canada's economy should rebound "over the course of the
year" from the impact of a wildfire in its energy heartland,
Finance Minister Bill Morneau said on Saturday on the sidelines
of a G20 meeting. 
    Canadian government bond prices were mostly lower across the
maturity curve, although prices for 20-year and 30-year bonds
rose. The two-year price slipped 3 Canadian cents to
yield 0.578 percent and the benchmark 10-year lost 7
Canadian cents to yield 1.107 percent.
    The Canada-U.S. two-year bond spread widened to -16.1 basis
points, while the 10-year spread was -46.8 basis points.

 (Editing by Jeffrey Hodgson)