CANADA FX DEBT-C$ edges higher as oil prices rebound
(Adds analyst quotes and comments from Canada's foreign minister, updates prices) * Canadian dollar ends at C$1.3155, or 76.02 U.S. cents * Bond prices higher across flatter yield curve * Ten-year yield touches two-month low at 1.607 percent By Fergal Smith TORONTO, Feb 8 (Reuters) - The Canadian dollar edged higher against its U.S. counterpart on Wednesday as oil prices rebounded and domestic housing starts climbed, while a recent rally for the greenback lost some momentum. Lower U.S. Treasury yields weighed on the U.S. dollar as investors priced out a March U.S. interest rate hike by the Federal Reserve amid uncertainty about President Donald Trump's economic policies. European political concerns and recent losses for oil added to downward pressure on bond yields, said Richard Gilhooly, head of rates strategy at CIBC Capital Markets. "It feels like we are getting a risk-off trade." U.S. crude oil futures hit a nearly three-week low before settling 17 cents higher at $52.34 a barrel. Investors covered short positions after a rise in U.S. crude inventories was not as massive as many had feared. Oil is one of Canada's major exports. The seasonally adjusted annualized rate of Canadian housing starts rose to a higher-than-expected 207,408 units in January, data from the national housing agency showed, suggesting ground-breaking on new homes was off to a strong start in 2017. The Canadian dollar ended at C$1.3155 to the greenback, or 76.02 U.S. cents, slightly stronger than Tuesday's close of C$1.3167, or 75.95 U.S. cents. The currency traded in a range of C$1.3137 to C$1.3200. The loonie has retreated from its strongest in more than four months of C$1.2969 on Jan. 31. On Tuesday, it touched its weakest in two weeks of C$1.3213. Investors have taken the view that the Canadian dollar will not strengthen much further than C$1.3000, Gilhooly said. Canada strongly opposes the idea of the United States imposing new border tariffs and would respond appropriately to any such move, Foreign Minister Chrystia Freeland told reporters. Canadian government bond prices were higher across a flatter yield curve in sympathy with Treasuries as longer-dated bonds outperformed. The two-year rose 3 Canadian cents to yield 0.725 percent and the 10-year climbed 61 Canadian cents to yield 1.619 percent. The 10-year yield touched its lowest intraday since Dec. 7 at 1.607 percent. The curve flattened even before an auction of U.S. 10-year notes on Wednesday and 30-year bonds on Thursday as investors bet that a sufficient discount had been built into the back end of the Treasury curve, said Gilhooly. Canada's employment report for January is due on Friday. The job market is expected to be unchanged after 2016's strong second half. (Reporting by Fergal Smith; Editing by James Dalgleish)
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