CANADA FX DEBT-C$ resilient to oil fall as Fed weighs on greenback

Thu Jul 28, 2016 5:11pm EDT
 
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* Canadian dollar settles at C$1.3161, or 75.98 U.S. cents
    * Bond prices mixed across the maturity curve

    By Alastair Sharp
    TORONTO, July 28 (Reuters) - The Canadian dollar firmed
against the greenback on Thursday as its U.S. counterpart was
pressured after the Federal Reserve stopped short of signaling
an imminent U.S. interest rate hike, while investors eyed
domestic economic data due on Friday.
    The loonie, as the Canadian currency is colloquially known,
has held relatively firm against the falling price of oil, a
major Canadian export, this week as currency markets focus on
global central bank moves.
    "Despite oil moving down and while we're awaiting GDP data
tomorrow that will be significantly negative, the market is not
pricing in any sort of move by the Bank of Canada, that's very
unusual," said Jimmy Jean, an economic strategist at Desjardins.
    The Canadian dollar settled at C$1.3161 to the
greenback, or 75.98 U.S. cents, stronger than the Bank of
Canada's official Wednesday close of C$1.3191, or 75.81 U.S.
cents.
    The currency's strongest level of the session was C$1.3101,
while its weakest was C$1.3193.
    The U.S. central bank left interest rates unchanged on
Wednesday and said the near-term risks to the U.S. economic
outlook had diminished. While that opened the door to another
rate hike, the Fed gave no firm indication it would do so at its
next meeting in September. The U.S. dollar was off 0.4 percent
against a basket of currencies. 
    The Japanese yen eased after Reuters reported the
Bank of Japan was considering expanding monetary stimulus under
pressure from the government to address signs of weak inflation.
 
    Desjardins' Jean said any easing move from the Bank of Japan
would likely push the U.S. dollar higher, leading to Canadian
dollar weakness.
    A particularly weak reading from Canada's gross domestic
product data for May due on Friday could also hurt the loonie.
Economic growth is expected to have declined 0.4 percent in May,
hurt by disruptions caused by wildfires in Alberta.
    Oil prices fell to their lowest since April, with
U.S. crude headed for its biggest monthly loss in a year,
on growing worries that the world was pumping more crude than
needed.
    Canadian government bond prices were lower at the short end
of the maturity curve and higher further out, with the two-year
 price down 1.5 Canadian cent to yield 0.586 percent
and the benchmark 10-year rising 7 Canadian cents to
yield 1.069 percent.
    The Canada-U.S. two-year bond spread narrowed to -12.5 basis
points, while the 10-year spread was -43.7 basis points.

 (Additional reporting by Leah Schnurr; Editing by Jeffrey
Benkoe and James Dalgleish)