CANADA FX DEBT-C$ gains after touching weakest in nearly 4 months

Tue Jul 26, 2016 5:22pm EDT
 
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(Adds trader comment, details on upcoming central bank event;
updates prices to close)
    * Canadian dollar settles at C$1.3189, or 75.82 U.S. cents
    * Bond prices lower across the maturity curve

    By Alastair Sharp
    TORONTO, July 26 (Reuters) - The Canadian dollar gained
against the U.S. dollar on Tuesday after touching its lowest
level in nearly four months, as currency markets braced for a
policy update from the U.S. Federal Reserve.
    The Canadian dollar ended at C$1.3189 to the
greenback, or 75.82 U.S. cents, stronger than the Bank of
Canada's official Monday close of C$1.3220, or 75.64 U.S. cents.
    The currency's weakest intra-day level was C$1.3244, its
lowest level since late March.
    "People are getting back more to a neutral stance as we
approach the central bank meetings this week," said Darcy
Browne, managing director for foreign exchange sales at CIBC
Capital Markets.
    The Fed is expected to leave interest rates unchanged when
it concludes its two-day meeting on Wednesday, with investors
looking for any signs that the U.S. central bank might be more
likely to hike rates in coming months.
    The Bank of Japan is also meeting this week, and most
economists surveyed by Reuters expect the BoJ to expand its
asset purchases and cut rates further below zero. Its two-day
meeting ends on Friday.
    Canada's domestic economic calendar is light this week. Data
at the end of the week is expected to show that economic growth
pulled back in May, likely due to the disruption caused by
wildfires in Alberta. 
    The loonie has lost more than 2 percent so far in July, hurt
as the price of oil has fallen back toward $40 a barrel after
hitting $50 in June.
    U.S. crude prices fell on Tuesday, hitting three-month lows,
as worries over a gasoline glut outweighed expectations of U.S.
crude stock declines, while Brent erased early losses to settle
higher. 
    Canadian government bond prices fell across the maturity
curve. The two-year price was down 3.5 Canadian cents
to yield 0.595 percent while the benchmark 10-year 
fell 16 Canadian cents to yield 1.123 percent.
    The Canada-U.S. two-year bond spread narrowed to -16.3 basis
points, while the 10-year spread came in to -44.2 basis points.

 (Additional reporting by Leah Schnurr in Ottawa; Editing by
Jonathan Oatis and Leslie Adler)