CANADA FX DEBT-C$ at strongest in a month as oil rallies

Mon Aug 15, 2016 5:02pm EDT
 
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(Adds trader comment, updates prices)
    * Canadian dollar settles at C$1.2917, or 77.42 U.S. cents
    * Loonie touches its strongest since July 15 at C$1.2902
    * Bond prices lower across the maturity curve

    By Alastair Sharp
    TORONTO, Aug 15 (Reuters) - The commodity-linked Canadian
dollar strengthened to a one-month high against its U.S.
counterpart on Monday as oil prices rose and sluggish U.S. data
tempered expectations of a Federal Reserve interest rate hike
this year.    
    Oil prices rose to their highest in five weeks as
speculation intensified about potential producer action to
support prices in an oversupplied market. U.S. crude 
settled up 2.8 percent at $45.74 a barrel. 
    "The bounce in oil here is maybe catching people by
surprise," said Darcy Browne, managing director for foreign
exchange sales at CIBC Capital Markets. 
    But he said the currency's gains would likely be limited
given the Bank of Canada is expected to hold rates steady long
after the Fed tightens U.S. monetary policy. 
    "I don't think there's a big bull move here in Canada," he
said.
    The Canadian dollar settled at C$1.2917 to the
greenback, or 77.42 U.S. cents, stronger than Friday's close of
C$1.2962, or 77.15 U.S. cents. 
    It has gained in each of the last six sessions, after sharp
divergence in jobs data pummeled the loonie on Aug. 5. 
    The currency's weakest level of the session was C$1.2975,
while it touched its strongest since July 15 at C$1.2902.
    CIBC's Browne said a break below C$1.29 could trigger some
stop-loss trades, but that the loonie would need to strengthen
to nearer C$1.26 to shift his outlook, while Canadian hedging
positions above C$1.33 will keep a lid on gains. 
    U.S. data on Friday that showed retail sales were
unexpectedly flat in July tempered expectations of a Fed
interest rate hike this year.      
    Speculators reduced bullish bets on the loonie for a second
straight week, Commodity Futures Trading Commission data showed
on Friday.        
    Canadian government bond prices were lower across the
maturity curve in sympathy with U.S. Treasuries. The two-year
 bond dipped 4.5 Canadian cents to yield 0.549 percent
and the benchmark 10-year fell 37 Canadian cents to
yield 1.044 percent.
    The curve steepened as the spread between the 2-year and
10-year yields widened by 1.6 basis points to 49.5 basis points,
indicating underperformance for longer-dated maturities. On
Friday, it hit its narrowest gap since June 2008 at 47.9 basis
points.
    Sales of existing Canadian homes fell 1.3 percent in July
from June while home prices kept rising, data from the Canadian
Real Estate Association showed. 
    Domestic data, including retail sales for June and inflation
for July, will both be released on Friday.

 (Additional reporting by Fergal Smith; Editing by Bernadette
Baum and Tom Brown)