CANADA FX DEBT-Canadian dollar weakens as oil dips, greenback rebounds

Mon Jan 16, 2017 5:26pm EST
 
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(Adds broker comment, updates prices to close)
    * Canadian dollar ends at C$1.3187, or 75.83 U.S. cents
    * Bond prices higher across the yield curve

    By Alastair Sharp
    TORONTO, Jan 16 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Monday, paring recent gains as
investors adopted a cautious tone ahead of a Bank of Canada
interest rate decision midweek and the inauguration of U.S.
President-elect Donald Trump on Friday.
    "We do have quite a bit of event risk later in the week, so
I think the market is taking today as an opportunity to take a
breather," said Blake Jespersen, managing director for foreign
exchange sales at BMO Capital Markets, noting that activity was
subdued with U.S. markets closed for Martin Luther King Jr. Day.
    "There's definitely some caution that's set in now,
Jespersen said. "People are reassessing their views on Trump and
what he's actually going to do."
    The Canadian dollar settled at C$1.3187 to the
greenback, or 75.83 U.S. cents, weaker than Friday's close of
C$1.3126, or 76.18 U.S. cents.
    The currency's strongest level of the session was C$1.3102,
while its weakest was C$1.3188. On Thursday, the loonie had
touched a near 3-month high at C$1.3028. 
    The U.S. dollar rose after suffering its worst week
since November. It was hit last week by a perceived lack of
clarity over what Trump will do once he assumes office.
 
    Analysts expect the Bank of Canada to leave its policy rate
on hold at 0.5 percent at Wednesday's announcement, where the
central bank will also update its economic forecasts.
 
    The possibility that Trump will follow through on
protectionist rhetoric has dented the outlook for Canada's
economy, with nearly half of economists polled recently paring
back growth forecasts. 
    Prices of oil, one of Canada's major exports, settled higher
as Saudi Arabia said it would adhere strictly to its output
reduction commitment, although expectations for rising U.S.
production hung over the market. 
    Speculators have raised bearish bets on the Canadian dollar.
Net short Canadian dollar positions rose to 7,935 contracts as
of Jan. 10 from 3,871 a week earlier, data from the Commodity
Futures Trading Commission and Reuters calculations showed on
Friday. 
    Canadian government bond prices were higher across the yield
curve as investors sought shelter in safe haven assets as
uncertainty over Britain's departure from the European Union and
the policies of Trump curbed appetite for risk.
    The two-year price rose 1.5 Canadian cents to
yield 0.792 percent and the 10-year climbed 17
Canadian cents to yield 1.695 percent.  

 (Additional reporting by Fergal Smith; Editing by Nick
Zieminski and Bill Rigby)