CANADA FX DEBT-C$ weakens with lower oil prices, more volatility eyed

Mon Jan 25, 2016 4:43pm EST
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(New throughout, updates prices and market activity, adds
trader comment)
    * Canadian dollar ends at C$1.4270, or 70.08 U.S. cents
    * Bond prices higher across the maturity curve

    By Alastair Sharp
    TORONTO, Jan 25 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Monday, retreating from last
week's rally as oil prices renewed their selloff and market
watchers expected wide swings in the currency to continue.
    Crude, a major Canadian export, fell as much as 5 percent
Iraq announced record-high oil production that will feed into an
already oversupplied market. Oil's loss wiped out much of the
gain on Friday from one of the biggest-ever daily rallies. 
    The Canadian dollar ended the session changing
hands at C$1.4270 to the greenback, or 70.08 U.S. cents, weaker
than Friday's official close of C$1.4150, or 70.67 U.S. cents.
    The currency rallied 3 percent last week after the Bank of
Canada surprised many traders by leaving its policy rate on
    David Bradley, director of foreign exchange trading at
Scotiabank, said the Canadian currency could range between
C$1.4050 and C$1.4550 as volatility continues.   
    "I don't know if we're necessarily ready to be searching for
a range," Bradley said. "Obviously we've had a large move up
from Jan. 1 until the Bank of Canada decided not to cut rates
and the move down to below C$1.41 was even more rapid than the
move up."
    The currency's strongest level of the session was C$1.4127,
while its weakest level was C$1.4272.
    Bearish bets on the Canadian dollar rose in the week ended
Jan. 19. Net short Canadian dollar positions increased to 66,386
contracts from 59,214 in the prior week, according to data from
the Commodity Futures Trading Commission released on Friday.
    Attention has shifted to the U.S. Federal Reserve interest
rate announcement on Wednesday, as well as the conclusion of the
Bank of Japan policy meeting on Friday. 
    Canadian government bond prices were higher across the
maturity curve, with the two-year price up 8 Canadian
cents to yield 0.416 percent and the benchmark 10-year
 rising 61 Canadian cents to yield 1.251 percent.
    The curve flattened in sympathy with U.S. Treasuries, as the
spread between the 2-year and 10-year yields narrowed by 2.6 
basis points to 83.5 basis points, indicating outperformance for
longer-dated maturities.
    The Canada-U.S. 10-year bond spread was 2.7 basis points
more negative at -75.7 basis points, trimming underperformance
last week by Canadian government bonds.
    Canadian GDP for November is awaited on Friday, expected to
reveal a rebound in growth after contraction in October.

 (Additional reporting by Fergal Smith; Editing by Chizu
Nomiyama and David Gregorio)