CANADA FX DEBT-C$ strengthens to a nearly 4-week high as oil surges

Wed Oct 19, 2016 11:16am EDT
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(Adds analyst quotes and details on Bank of Canada decision,
EU-Canada free trade agreement and Canadian government advisory
group and updates prices)
    * Canadian dollar at C$1.3084, or 76.43 U.S. cents
    * Bond prices lower across steeper yield curve

    By Fergal Smith
    TORONTO, Oct 19 (Reuters) - The Canadian dollar strengthened
to a nearly four week high against its U.S. counterpart on
Wednesday as a surge in oil prices overshadowed the Bank of
Canada's decision to leave interest rates on hold.
    The central bank cut its growth forecast, citing a looming
slowdown in housing and a weaker outlook for exports, but said
fiscal stimulus, accommodative monetary policy and a
strengthening U.S. economy should help in months ahead.
    As expected, it held its overnight rate at 0.5 percent,
where it has been since July 2015.
    "The broad contours are pretty much in line with what we
were expecting," said Jimmy Jean, senior economist at
    U.S. crude prices were up 3.18 percent at $51.89 a
barrel, extending gains after data showed a large draw in U.S.
crude stocks. 
    The inventory data was "bullish" for oil and the loonie
benefited as oil climbed, said Greg Anderson, global head of
foreign exchange strategy at BMO Capital Markets. 
    Oil is one of Canada's major exports.
    Gains for the loonie came as equity market volatility fell.
The CBOE Volatility Index, which is a measure of expected
volatility in U.S. stock prices, tumbled more than 6 percent.
    At 10:59 a.m. EDT (1459 GMT), the Canadian dollar 
was trading at C$1.3013 to the greenback, or 76.85 U.S. cents,
much stronger than Tuesday's close of C$1.3119, or 76.23 U.S.
    The currency's weakest level of the session was C$1.3129,
while it touched its strongest since Sept. 22 at C$1.3012.
    China reported its economy expanded at a steady 6.7 percent
in the third quarter, as expected. 
    China is Canada's second-largest trading partner.
    Canadian government bond prices were lower across a steeper
yield curve, with the two-year down 2.5 Canadian
cents to yield 0.602 percent and the benchmark 10-year
 falling 22 Canadian cents to yield 1.218 percent.
    The premier of the Belgian region that is the main
impediment to a planned EU-Canada free trade agreement advised
postponing a summit next week to sign the deal and taking a few
more months to fix outstanding issues. 
    A Canadian government advisory group will this week
recommend the creation of an infrastructure bank and urge
increased immigration to stoke economic growth, the Globe and
Mail reported. 

 (Reporting by Fergal Smith; Editing by Will Dunham and Nick