CANADA FX DEBT-C$ falls as crude oil prices, stock market losses weigh

Tue Feb 2, 2016 5:04pm EST
 
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(Adds strategist comment, updates prices)
    * Canadian dollar ends C$1.4027, or 71.29 U.S. cents
    * Currency pulls back from Monday's nearly four-week high
    * Bond prices higher across maturity curve on flight to
safety

    By Alastair Sharp
    TORONTO, Feb 2 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Tuesday, pulling back from a
nearly four-week high as lower crude oil prices and stock market
losses weighed on the risk-sensitive commodity currency.
    Oil prices  sank for a second day as hopes for
a deal between OPEC and Russia on output cuts faded and concerns
rose about mild winter weather dampening demand. 
    The loonie, as Canada's currency is colloquially known, had
strengthened on Monday despite the lower oil price.
    Stocks slid worldwide after three days of gains.
 Canada's main index fell 1.8 percent,
with its energy sector off 3.5 percent. 
    The Canadian dollar ended the session at C$1.4027
to the greenback, or 71.29 U.S. cents, weaker than Monday's
official close of C$1.3930, or 71.79 U.S. cents.
    The move came against a broadly weaker greenback,
which tumbled against the yen and slipped against the
euro as oil's fall added to concerns about global
economic growth. 
    Mazen Issa, a senior foreign exchange strategist at
Toronto-Dominion Bank, said the Canadian currency appears
comfortable trading in a C$1.40-C$1.45 range and that oil may be
giving up some of its influence over the currency to U.S.-Canada
interest rate spreads, which have tightened in recent days.
    "It's still very much a fluid, raw risk, but it's very
interesting to note the rate spreads growing in significance in
terms of being a driver for the currency," Issa said. 
    Renewed pressure on oil prices has left the market fully
discounting a July interest rate cut from the Bank of Canada
after implying a 90 percent probability on Monday. 
    The currency had rebounded since touching its weakest since
2003 on Jan. 20 after the central bank kept rates on hold.
    Fellow commodity currency the Australian dollar 
fell after the country's central bank held rates steady while
leaving the door open to further easing.
  
    The Canadian currency's strongest level of the session was
C$1.3940, while C$1.4082 was its weakest. 
    Canadian government bond prices were higher across the
maturity curve on the flight to safety. The two-year 
price was up 8.5 Canadian cents to yield 0.377 percent and the
benchmark 10-year surged C$1.03 to yield 1.118
percent.
    The Canada-U.S. 2-year spread was 2.7 basis points less
negative at -36.1 basis points as Treasuries outperformed at the
front and the belly of the curve.
    Canadian employment data for January and trade data for
December are due on Friday, as are U.S. jobs data. 

 (Additional reporting by Fergal Smith; Editing by W Simon and
James Dalgleish)