CANADA FX DEBT-C$ strengthens as Fed doubts offset lower oil prices

Tue Aug 23, 2016 9:40am EDT
 
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* Canadian dollar at C$1.2915, or 77.43 U.S. cents
    * Bond prices slightly higher across flatter maturity curve

    TORONTO, Aug 23 (Reuters) - The risk-sensitive Canadian
dollar strengthened against its U.S. counterpart on Tuesday as
skepticism that the Federal Reserve will hike interest rates
this year and gains in world shares offset a drop in oil prices.
    The U.S. dollar dipped against a basket of major
currencies amid doubts Fed Chair Janet Yellen will be able to
convince financial markets in a speech later this week that she
can steer a divided U.S. central bank to raise interest rates at
least once in 2016. 
    World shares rose as data from the euro zone supported
sentiment. 
    But oil fell as signs of rising supply outweighed hopes that
producing nations will agree steps to support prices. U.S. crude
 prices were down 1.41 percent to $46.74 a barrel.
 
    At 9:28 a.m. EDT (1328 GMT), the Canadian dollar 
was trading at C$1.2915 to the greenback, or 77.43 U.S. cents,
stronger than Monday's close of C$1.2950, or 77.22 U.S.
    The currency's strongest level of the session was C$1.2885,
while its weakest was C$1.2947.
    On Monday, the loonie touched its weakest in one week at
C$1.2965.
    Gains for the Canadian dollar came after
stronger-than-expected domestic wholesale trade data on Monday.
 
    Still, recent retail sales data disappointed 
and Canada's economy is expected to contract in the second
quarter after a wildfire in Alberta cut oil production.    
    Canadian government bond prices were slightly higher across
the maturity curve, with the two-year bond up 0.5
Canadian cent to yield 0.549 percent and the benchmark 10-year
 rising 10 Canadian cents to yield 1.015 percent.
    The curve flattened, as the spread between the 2-year and
10-year yields narrowed by 0.7 of a basis point to 46.6 basis
points, its narrowest since June 2008, indicating outperformance
for longer-dated maturities.

 (Reporting by Fergal Smith; Editing by Nick Zieminski)