CANADA FX DEBT-C$ hits 4-month low as commodity, rate outlooks weigh
* C$ at C$1.0595 vs US$, or 94.38 U.S. cents * Bond prices mostly lower By Alastair Sharp and Leah Schnurr TORONTO, Nov 27 (Reuters) - The Canadian dollar weakened to a four-month low versus the greenback on Wednesday, as investors shied away from the commodity-linked currency due to a drab outlook for resources. A Goldman Sachs note out on Tuesday suggested the Canadian dollar could fall to C$1.14 a year from now as commodity prices are likely to sag. U.S. crude fell by nearly $2 a barrel on Wednesday after a higher-than-expected build in inventories. That outlook, coupled with a retreat in the Bank of Canada's hawkish tilt and expectations that the Federal Reserve will soon move to withdraw its monetary stimulus, has cut about 3 percent off the relative value of Canada's currency since late October. After the Fed surprised markets in September by holding the pace of its $85 billion a month in bond purchases steady, investors are trying to gauge whether the U.S. central bank will begin to wind down its bond buying at its next meeting in December or wait until next year. A rise in U.S. bond yields indicates Fed tapering "is going to come sooner rather than later," said Rahim Madhavji, president of Knightsbridge FX.com in Toronto. "That bodes well for the U.S. dollar and, unfortunately, it's not good news for the Canadian dollar." The Canadian dollar ended the North American trading session at C$1.0595 to the greenback, or 94.38 U.S. cents, weaker than C$1.0530, or 94.97 U.S. cents, at Tuesday's close. The loonie hit a session low of C$1.0603, its weakest since early July. The Canadian dollar is seen benefiting if the Fed maintains its bond-buying program longer, as the currency should attract some risk appetite. In the meantime, the trend of U.S. dollar strength and Canadian dollar weakness is likely to continue in the short term, said Madhavji. "Inflation isn't a threat, oil prices are getting weaker, the Bank of Canada is not going to do anything - the loonie is caught without much of a catalyst to help it," said Madhavji. Trading is likely to be muted on Thursday with U.S. markets closed for the Thanksgiving holiday. On the domestic front, investors will get data on the current account deficit, which is expected to have narrowed in the third quarter. The two-year bond was unchanged to yield 1.098 percent, while the benchmark 10-year bond fell 22 Canadian cents to yield 2.552 percent.
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