CANADA FX DEBT-C$ rallies to nearly 8-week high, gains pared as oil drops

Thu Feb 4, 2016 4:37pm EST
 
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(Adds analyst comments, updates prices)
    * Canadian dollar ends at C$1.3745, or 72.75 U.S. cents
    * Currency touches strongest level since Dec. 11 at C$1.3640
    * Bond prices mixed across the maturity curve

    By Fergal Smith
    TORONTO, Feb 4 (Reuters) - The Canadian dollar rallied to a
nearly eight-week high against a weaker U.S. counterpart on
Thursday, although gains were pared as crude oil prices reversed
lower.
    The currency has rallied 7 percent since Jan. 20,
when it hit its weakest level since 2003 at C$1.4689, helped by
expectations that the Bank of Canada will not cut rates in the
near term. 
    A more dovish European Central Bank, the recovery in oil
prices and stabilization in stocks have given the rally added
traction, according to Michael Goshko, corporate risk manager at
Western Union Business Solutions, while U.S. dollar weakness has
taken over as the major driver over the past two days.
    "It has nothing to do with what's going on internally," said
Goshko.
    The U.S. dollar extended its plunge against major
currencies amid doubts the U.S. Federal Reserve will be able to
hike interest rates this year. 
    The collapse through support at C$1.3800 was a gift for
Canadian corporate U.S. dollar buyers, according to Goshko. "Our
customers backed up the truck in record volumes," he said.
    Oil prices reversed earlier gains amid skepticism that a
supply cut deal will be reached. U.S. crude 
prices settled at $31.72 a barrel, down 1.73 percent.    
    The Canadian dollar ended at C$1.3745 to the
greenback, or 72.75 U.S. cents, stronger than Wednesday's
official close of C$1.3773, or 72.61 U.S. cents.
    The currency touched its strongest level since Dec. 11 at
C$1.3640, while its weakest was C$1.3797.    
    However, market players expressed concern that weak domestic
fundamentals will reassert as the dominant driver.
    "I don't think we've reached the inflection point," said
Mazen Issa, macro strategist at TD Securities. "I think it is
just more of a breather, a washout of positioning."
    The Bank of Canada will be just as concerned with a
significant appreciation in the Canadian dollar as it had been
with a rapid move lower, he added.    
    Canadian government bond prices were mixed across the
maturity curve, with the two-year price half a
Canadian cent higher to yield 0.395 percent and the benchmark
10-year off 3 Canadian cents to yield 1.157 percent.
    The Canada-U.S. 10-year spread was 3.3 basis points less
negative at -69.4 basis points, trading at its narrowest gap in
two months, as Treasuries outperformed.
    Canadian employment data for January and trade data for
December are due on Friday, as are U.S. jobs data.

 (Reporting by Fergal Smith; Editing by Meredith Mazzilli and
Matthew Lewis)