CANADA FX DEBT-C$ pares gains as oil turns lower

Tue Aug 2, 2016 5:19pm EDT
 
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(Adds analyst comments and details on RBC PMI, updates prices)
    * Canadian dollar ends at C$1.3102, or 76.32 U.S. cents
    * Bond prices lower across steeper maturity curve

    By Fergal Smith
    TORONTO, Aug 2 (Reuters) - The commodity-linked Canadian
dollar pared gains against its U.S. counterpart on Tuesday as
oil turned lower, while weaker-than-expected U.S. data last week
weighed on the greenback.
    The U.S. dollar fell to a five-week low against a
basket of major currencies. The greenback has been sold steadily
since surprisingly weak U.S. second-quarter growth numbers last
week. 
    The boost from a weak U.S. dollar helped support oil early
in the session. But U.S. crude oil futures settled down
55 cents at $39.51 a barrel as persistent worries of a glut
weighed. 
    "It looks like it (the Canadian dollar) was just really
following the oil price," said Ian Gordon, FX strategist at Bank
of America Merrill Lynch.     
    The Canadian dollar ended at C$1.3102 to the
greenback, or 76.32 U.S. cents, stronger than Monday's Reuters
close of C$1.3120, or 76.22 U.S. cents.
    The loonie's official close on Friday before a civic holiday
on Monday was C$1.3056, or 76.59 U.S. cents.
    The currency's strongest level of the session was C$1.3005,
while its weakest was C$1.3143.
    Speculators increased bullish bets on the Canadian dollar
for the fifth straight week, Commodity Futures Trading
Commission data showed on Friday. Net long Canadian dollar
positions rose to 23,180 contracts in the week ended July 26
from 22,068 contracts in the prior week. 
    In contrast, Bank of America Merrill Lynch's proprietary
data shows that non-leveraged accounts have reduced their
exposure to the Canadian dollar, Gordon said.
    Canadian government bond prices were lower across a steeper
maturity curve in sympathy with U.S. Treasuries. The two-year
 bond dipped 3.5 Canadian cents to yield 0.558 percent
and the benchmark 10-year declined 47 Canadian cents
to yield 1.077 percent.
    On Friday, the 10-year yield hit a two-week low at 1.023
percent.
    Losses for global bond markets came as Japan's cabinet
approved a fiscal stimulus package on Tuesday to revive the
country's flagging economy. Last week, the Bank of Japan
announced further easing steps that disappointed investors.
    The RBC Canadian Manufacturing Purchasing Managers' Index
(PMI), a measure of manufacturing business conditions, barely
rose last month to a seasonally adjusted 51.9 from 51.8 in June.
    
    Canada's international trade data for June and employment
report for July are awaited on Friday. 

 (Reporting by Fergal Smith; Editing by Bernadette Baum and Dan
Grebler)