CANADA FX DEBT-C$ recovers from 8-mth low, still weaker on Trump win

Wed Nov 9, 2016 11:43am EST
 
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(Adds analyst quotes, updates prices)
    * Canadian dollar at C$1.3447, or 74.37 U.S. cents
    * Partly recovers from C$1.3525 overnight, weakest since
March 1
    * Bond prices mixed across a steeper yield curve
    * 10-year yield touches its highest since May 31 at 1.332
percent

    By Fergal Smith
    TORONTO, Nov 9 (Reuters) - The Canadian dollar pared some
losses after hitting an eight-month low against its U.S.
counterpart on Wednesday as Republican Donald Trump's election
to the White House raised fears about the outlook for Canada's
trade-intensive economy.
    Trump has said he would renegotiate or scrap the North
American Free Trade Agreement if elected.
    "From a G10 perspective Canada is bearing the brunt of this
Trump victory," said Jack Spitz, managing director of foreign
exchange at National Bank Financial, who added that market
volatility had triggered active trading by clients.
    At 11:11 a.m. EST (1611 GMT), the Canadian dollar 
was trading at C$1.3447 to the greenback, or 74.37 U.S. cents,
much weaker than Tuesday's close of C$1.3305, or 75.16 U.S.
cents.
    The currency's strongest level of the session was C$1.3265,
while it touched its weakest since March 1 at C$1.3525.
    The loonie had gained against the U.S. dollar on Tuesday
amid expectations that Democratic presidential candidate Hillary
Clinton was likely to prevail.       
    "The uncertainty and the threat to tear up NAFTA are on net
a mild negative for the currency (Canadian dollar) but there are
certainly some small potential positives out there, especially
if the U.S now embarks a stimulative fiscal policy," said Doug
Porter, chief economist at BMO Capital Markets.
    U.S. stocks were little changed, rebounding from stunning
overnight losses, while oil reversed most of its early losses.
U.S. crude prices were up 0.96 percent at $45.41 a
barrel.    
    Markets did not see much greater chance of a Bank of Canada
rate cut. The implied probability of a cut by mid-2017 has
dipped to 27 percent from above 30 percent on Friday before
economic reports showed solid jobs gains for the U.S. and
Canada. 
    TD Securities said in a note to clients it raised its odds
of a December cut to 33 percent from 20 percent.
    Canadian short-term government debt prices firmed but long
bond prices fell, steepening the yield curve in sympathy with
U.S. Treasuries. Investors weighed potential for the Federal
Reserve to hold off from a rate hike in December and bet that
Trump will enact policies that will increase inflation.
    
    "The uncertainty that surrounds the change in U.S.
presidency could bring with it an opportunity for (Fed Chair)
Janet Yellen to hold off until 2017," Spitz said.
    The two-year rose 0.5 of a Canadian cent to yield
0.579 percent and the benchmark 10-year declined 31
Canadian cents to yield 1.305 percent.
    The 10-year yield touched its highest since May 31 at 1.332
percent.

 (Additional reporting by Leah Schnurr; editing by Grant McCool
and Tom Brown)