November 18, 2016 / 9:52 PM / 8 months ago

CANADA FX DEBT-C$ dips vs surging greenback as core inflation cools

3 Min Read

* Canadian dollar ends at C$1.3513, or 74.00 U.S. cents
    * Bond prices mixed across steeper yield curve
    * Canada-U.S. 10-year spread reaches widest since January

    By Fergal Smith
    TORONTO, Nov 18 (Reuters) - The Canadian dollar weakened
slightly against its U.S. counterpart on Friday as higher oil
prices were offset by broader gains for the greenback and data
showing cooler domestic core inflation.
    For the week, the loonie ended 0.2 percent higher. But it
has fallen 1.5 percent since before the U.S. election last week,
pressured by a more uncertain outlook for its trade-intensive
economy.
    "We're still on the ropes a little bit for the CAD (Canadian
dollar) overall," said Shaun Osborne, chief currency strategist
at Scotiabank.
    On Monday, the loonie touched its weakest in eight months at
C$1.3589.
    "Markets would have been very negative on the CAD if the
inflation numbers had disappointed," Osborne said.
    Canada's annual inflation rate picked up to 1.5 percent in
October, matching analysts' expectations, as gasoline prices
rose. But the core rate, which strips out some volatile items,
cooled slightly to 1.7 percent from 1.8 percent, hitting the
lowest level since July 2014.    
    "Decelerating core inflation does reflect an economy that
has still a fair bit of excess capacity in it," said Andrew
Kelvin, senior rates strategist at TD Securities.
    The U.S. dollar rose to its highest level since April
2003 against a basket of currencies.    
    U.S. crude prices settled up 27 cents at $45.69 a
barrel, buoyed by hopes that OPEC might agree to production
cuts. 
    Oil is one of Canada's major exports.    
    The Canadian dollar ended at C$1.3513 to the
greenback, or 74.00 U.S. cents, slightly weaker than Thursday's
close of C$1.3507, or 74.04 U.S. cents.
    The currency's strongest level of the session was $1.3492,
while its weakest was C$1.3564.
    The expiry of billions of dollars of options struck at
C$1.3500 and buying of the Canadian dollar against the euro,
sterling and the Australian dollar helped cushion losses for the
loonie, Osborne said.
    Canadian government bond prices were mixed across a steeper
yield curve. The two-year firmed 1.5 Canadian cents
to yield 0.669 percent and the benchmark 10-year 
declined 8 Canadian cents to yield 1.573 percent.
    The 10-year yield fell 5.1 basis points further below its
U.S. counterpart to leave the spread at -76.6 basis points, its
largest gap since January, as U.S. Treasuries underperformed.
    "It (the spread) can go more deeply negative ... you could
even see a full percentage point through," said Scott Colbourne,
co-chief investment officer at Sprott Asset Management, who sees
evidence of the U.S. and Canadian economies diverging.

 (Reporting by Fergal Smith; editing by Diane Craft)

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