CANADA FX DEBT-C$ turns weaker as dour Bank of Canada offsets oil surge
(Updates prices) * Canadian dollar ends at C$1.3127, or 76.18 U.S. cents * Loonie touches its strongest since Sept. 22 at C$1.3005 * Bond prices mixed across yield curve By Fergal Smith and Alastair Sharp TORONTO, Oct 19 (Reuters) - The Canadian dollar fell on Wednesday after Bank of Canada policymakers said they had considered adding more monetary stimulus and that export weakness could be harder to turn around than they had thought, cancelling out earlier oil-powered gains. The currency had strengthened to a nearly four-week high after a shock drop in U.S. crude inventories led to a surge in prices for oil, a major Canadian export. But those gains were erased as the central bank said it expects a permanent shortfall in exports to shave 0.6 percentage point off growth by the end of 2018. "They're getting pretty negative about the export picture, especially the non-energy export picture," said Michael Goshko, corporate risk manager at Western Union Business Solutions. "Then the icing on the cake was when they said that the governing council actively discussed the possibility of adding more monetary stimulus," he said. The central bank cut its growth forecast, citing a looming slowdown in housing and the weaker export outlook, but held its overnight lending rate at 0.5 percent, where it has been since July 2015. The Canadian dollar ended at C$1.3127 to the greenback, or 76.18 U.S. cents, slightly weaker than Tuesday's close of C$1.3119, or 76.23 U.S. cents. It touched its strongest intraday level since Sept. 22 at C$1.3005, with U.S. crude hitting 15-month highs after government data showed a surprisingly large drop in domestic inventories for a sixth week out of seven. U.S. crude prices settled $1.31 higher at $51.60 a barrel. Canadian government bond prices were mixed across the yield curve, with the two-year up 5 Canadian cents to yield 0.565 percent and the benchmark 10-year rising 3 Canadian cents to yield 1.191 percent. The curve steepened as the spread between the two-year and 10-year yields widened by 2.1 basis points to 62.6 basis points, indicating outperformance for shorter-dated bonds. The premier of the Belgian region that is the main impediment to a planned EU-Canada free trade agreement sought to postpone 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 and Alastair Sharp; Editing by Meredith Mazzilli and Leslie Adler)
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