CANADA FX DEBT-C$ hits 7-week high on oil rally, Fed hike doubts

Wed Feb 3, 2016 5:06pm EST
 
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(Adds trader comment, details; updates prices)
    * Canadian dollar at C$1.C$1.3773, or 72.61 U.S. cents
    * Currency touches its strongest level since Dec. 16 at
C$1.3757
    * Bond prices lower across the maturity curve

    By Alastair Sharp
    TORONTO, Feb 3 (Reuters) - The Canadian dollar rallied to a
seven-week high against a broadly weaker U.S. counterpart on
Wednesday as oil prices bounced and doubts about future U.S.
rate hikes weighed on the greenback.
    The loonie, as Canada's currency is colloquially known, may
have also benefited from the announced takeover of a major
Canadian retailer. 
    Wednesday's rally completes a reversal of weakness since the
start of 2016, which saw the loonie hit C$1.4689, its weakest
level since April 2003. The recovery was set off by the Bank of
Canada's Jan. 20 decision to hold rates steady when many were
bracing for a cut.
    Meanwhile, doubts about the pace of U.S. rate hikes were
stoked on Wednesday by a top U.S. Federal Reserve official's
acknowledgement that tighter financial conditions would weigh on
policymakers heading into a March meeting. 
    The Canadian dollar ended the session trading at
C$1.3773 to the greenback, or 72.61 U.S. cents, much stronger
than the Bank of Canada's official close of C$1.4027, or 71.29
U.S. cents.
    The currency touched its strongest level since Dec. 16 at
C$1.3757, while its weakest level was C$1.4103.
    "For the most part it was a one-way street," said David
Bradley, director of foreign exchange trading at Scotiabank,
citing the likely liquidation of bullish bets on the U.S. dollar
against a string of currencies as technical levels broke down.
    Oil prices jumped 8 percent higher, helped by the U.S.
dollar weakness which made the commodity cheaper for holders of
other currencies. Rising oil prices also typically support the
currency of Canada, a major energy exporter. 
    Scotia's Bradley said the Canadian currency will likely
trade closer to the lower end of a C$1.35 to C$1.45 range, with
potential for more appreciation if U.S. jobs data due on Friday
disappoints.
    U.S. home improvement retailer Lowe's Companies Inc 
said it agreed to buy Canada's Rona Inc in a deal
valued at C$3.2 billion ($2.28 billion). 
    Dealers doubted that foreign exchange flows related to the
deal had driven the Canadian dollar higher overnight. But
expectation that flows might occur was supportive of the
currency.
    "It could be market participants thinking that they might
front run that (takeover related flows)," said Brad Schruder,
director of foreign exchange at BMO Capital Markets.
    Canadian government bond prices were lower across the
maturity curve, with the two-year price down 5.5
Canadian cents to yield 0.401 percent and the benchmark 10-year
 falling 33 Canadian cents to yield 1.154 percent.

 (Additional reporting by Fergal Smith; Editing by Nick
Zieminski and Tom Brown)