CANADA FX DEBT-C$ weakens as oil falls, greenback gains

Thu Nov 10, 2016 5:05pm EST
 
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(Adds trader comment, updates prices to close)
    * Canadian dollar settles at C$1.3483, or 74.17 U.S. cents
    * Bond prices lower across steeper yield curve
    * 2-year, 10-year yields hits highest since May

    By Alastair Sharp
    TORONTO, Nov 10 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Thursday, pressured by lower oil
prices and broader gains for the greenback as investors weighed
how the policies of U.S. President-elect Donald Trump could
affect trade and economic growth.
    Canadian government bond prices were lower across a steeper
yield curve in sympathy with U.S. Treasuries as investors bet
that Trump will enact policies that stoke inflation.
    But with Canada unlikely to match any future U.S. rate hikes
due to tepid growth, some analysts say spreads between the two
countries yields should widen, putting further pressure on the
Canadian currency.
    The Canadian central bank cut rates twice last year as a
plunge in oil prices hit the economy. The bank has held rates at
0.50 percent since July 2015, but acknowledged after its policy
meeting last month that it had considered cutting again.
    Darcy Browne, managing director of foreign exchange sales at
CIBC Capital Markets, said the loonie could hit C$1.40 before
Trump's inauguration in January.
    The Canadian dollar settled at C$1.3483 to the
greenback, or 74.17 U.S. cents, much weaker than Wednesday's
close of C$1.3378, or 74.75 U.S. cents.
    However, over the longer term, Trump's promise to cut taxes
and spend on infrastructure could help Canada's export-driven
economy, Browne said.
    "If he does 'make America great again,' we can probably ride
the coattails," Browne said. "If you're talking a massive
infrastructure build in the United States, it requires raw
materials, most of which we probably have and can help provide,"
Browne said.
    Also weighing on the Canadian currency, oil prices settled
more than 1 percent lower as attention turned back to oversupply
concerns and whether OPEC will later this month decide to cut
production.
    "Before money is going to come back into our country we need
oil at $65" a barrel, Browne said.
    Brent crude settled 54 cents lower at $45.84 a
barrel and U.S. West Texas Intermediate crude ended 61
cents lower at $44.66. 
    The price of a two-year Canadian bond fell 7.5
Canadian cents to yield 0.628 percent and the benchmark 10-year
 lost 56 Canadian cents to yield 1.432 percent. The
yields on both were the highest since May.
    The currency's strongest level of the session was C$1.3386,
while its weakest was C$1.3509. On Wednesday, the loonie touched
an eight-month low at C$1.3525.
    In domestic data, new home prices rose 0.2 percent in
September from the previous month, Statistics Canada said.

 (Additional reporting by Fergal Smith, editing by G Crosse)