January 29, 2016 / 3:02 PM / 2 years ago

CANADA FX DEBT-C$ rallies as BoJ stokes risk appetite, oil prices rise

* Canadian dollar at C$1.3974 or 71.56 U.S. cents

* Bond prices higher across the maturity curve

By Fergal Smith

TORONTO, Jan 29 (Reuters) - The Canadian dollar rose against a stronger U.S. counterpart on Friday after a Bank of Japan rate cut triggered gains for global asset markets, while oil rallied and data showed Canadian and U.S. growth in line with economists’ expectations.

Canada’s economy grew for the first time in three months in November, rising 0.3 percent.

The data supported a recovery in the Canadian dollar since the Bank of Canada surprised many traders last week and left its policy rate on hold at 0.50 percent.

“It probably puts quarterly GDP (gross domestic product) around zero, which is where the Bank of Canada was tracking,” said Andrew Kelvin, senior rates strategist at TD Securities.

Supportive of the risk-sensitive Canadian dollar, world shares jumped after the Bank of Japan stunned markets with a surprise move to negative interest rates.

U.S. crude prices were up 3.3 percent to $34.30, heading for a weekly gain on hopes for a deal between major exporters to cut production.

U.S. economic growth slowed to a 0.7 percent rate in the fourth quarter.

At 9:36 a.m. EST (1436 GMT), the Canadian dollar traded at C$1.3974 to the greenback, or 71.56 U.S. cents, stronger than the Bank of Canada’s official close of C$1.4048, or 71.18 U.S. cents.

The currency’s strongest level of the session was C$1.3968, while its weakest was C$1.4086.

On Thursday, it touched its strongest level since Jan. 5 at C$1.3948.

In other domestic data, producer prices fell 0.2 percent in December from November, the fifth consecutive monthly drop, on lower prices for energy and petroleum products, Statistics Canada said.

Canadian government bond prices were higher across the maturity curve in sympathy with global sovereign debt markets.

The two-year price was up 1.5 Canadian cents to yield 0.42 percent and the benchmark 10-year rose 52 Canadian cents to yield 1.182 percent.

The curve flattened as the spread between the 2-year and 10-year yields narrowed by 4.9 basis points to 76.2 basis points, indicating outperformance for longer-dated maturities.

The Canada-U.S. two-year bond spread was 3.5 basis points less negative at -35.8 basis points as Canadian government bonds underperformed at the front of the curve. (Editing by Jeffrey Benkoe)

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