CANADA FX DEBT-C$ drops as oil retreat resumes; Bank of Canada in focus

Tue Dec 2, 2014 4:42pm EST
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(Adds comment, details and closing figures)
    * Canadian dollar at C$1.1394 or 87.77 U.S. cents
    * Bond prices mixed across the maturity curve

    By Solarina Ho
    TORONTO, Dec 2 (Reuters) - The Canadian dollar fell against
the greenback on Tuesday on uncertainty over whether crude oil
prices have bottomed out, with the market also concerned about
how plunging oil might figure into the Bank of Canada's policy
statement on Wednesday.
     Canada is a major exporter of crude and its currency has
dropped in recent months as oil prices have dived.
     Last week, the Organization of the Petroleum Exporting
Countries decided not to cut back its production targets, news
that sent oil prices on a volatile ride and left the market
nervous about how low crude prices, already on a five-month
decline, can go.
    Prices fell again on Tuesday, hurt by factors including a
deal that will add more Iraqi crude to already oversupplied
    "This market (is) looking for a balance still. Last week's
activity with the thin liquidity brought about by the U.S.
holiday really caught the market a little bit flat-footed," said
Brad Schruder, director of foreign exchange sales at BMO Capital
Markets in Toronto.
    "The loonie lost 2 cents in about 48 hours. Yesterday it
recouped about half of that, and now we're almost right back to
where we were mid-afternoon on Friday."
    The Canadian dollar finished at C$1.1394 to the
greenback, or 87.77 U.S. cents, weaker than Monday's close of
C$1.1328, or 88.28 U.S. cents.
    Analysts said investors were likely positioning themselves
ahead of the Bank of Canada policy statement and interest rate
decision on Wednesday.
    "The emerging view is that you've had strong data growth and
inflation numbers, but the plunge in oil prices kind of gives a
bit of an out, if you will, for the (Bank of Canada) governor to
signal some cautiousness," said Mazen Issa, senior Canada macro
strategist at TD Securities, adding that TD believes the central
bank could end up offering a more balanced view than has been
    "If they are a little bit more balanced tomorrow than people
may be expecting, then you could see a little bit more of a
stronger CAD against the U.S. dollar."
    Canadian government bond prices were mixed across the
maturity curve, with T-bills higher and longer-dated maturities
    The two-year bond was down 4 Canadian cents, with
a yield of 1.010 percent and the benchmark 10-year bond
 was down 51 Canadian cents, yielding 1.955 percent.

 (Additional reporting by Leah Schnurr; Editing by Peter