CANADA FX DEBT-C$ weaker after Yellen remarks, U.S. oil weighs

Wed Feb 10, 2016 5:15pm EST
 
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(Adds currency trader comment, updates prices to close)
    * Canadian dollar ends session at C$1.3933, or 71.77 U.S.
cents
    * 10-year yield makes first-ever break below 1 percent
    * Bond prices mixed across maturity curve

    By Alastair Sharp
    TORONTO, Feb 10 (Reuters) - The Canadian dollar dipped
against its U.S. counterpart on Wednesday as U.S. crude oil
prices fell and Federal Reserve Chair Janet Yellen left the door
open to further interest rate hikes.
    Yellen cited global risks in her prepared testimony to
Congress, but said she expects moderate growth that will allow
the U.S. central bank to pursue "gradual" adjustments to
monetary policy. 
    The yield on 10-year Canadian government bonds dipped below
1 percent for the first time ever as economic uncertainty
swirled.
    The Canadian dollar ended the session trading at
C$1.3933 to the greenback, or 71.77 U.S. cents, weaker than the
Bank of Canada's official close on Tuesday of C$1.3879, or 72.05
U.S. cents.
    It has weakened from C$1.38 at the start of the year to
almost C$1.47 on Jan. 20 before returning to the C$1.38-C$1.40
range in recent days.
    "The story is global dislocation and uncertainty," said
Darcy Browne, managing director for foreign exchange sales at
CIBC Capital Markets. "There's really no meaningful direction
short term."
    He said the reversal in dollar/Canada in recent weeks
suggested the push to a 12-1/2-year low may have been overdone,
while volatility is likely being exacerbated by some major
market participants standing back to see where things settle.
    Stock markets have sagged given uncertainty surrounding
monetary policy and a steep decline in commodity prices, while
corporate results and economic data offer little comfort.
    U.S. crude prices fell 2 percent on Wednesday after
stockpiles at the main U.S. delivery point hit record highs,
while Brent rose for the first time in five days after Russia
suggested oil producers cut output by a million barrels each.
 
    Canada's new Liberal government is set to unveil its first
budget in the week of March 21, two sources with knowledge of
the process said on Tuesday. The Liberals have pledged major new
spending aimed at boosting a flagging economy. 
    Canadian government bond prices were mixed across the
maturity curve, with the two-year price down 1.5
Canadian cents to yield 0.36 percent and the benchmark 10-year
 adding 45 Canadian cents to yield 0.999 percent, a
fresh record low as investors flock to safety.    
    The yield curve flattened, with the spread between the
2-year and 10-year yields narrowing by 5.5 basis points to 63.9
basis points. The Canada-U.S. two-year bond spread was 1 basis
points less negative at -34.4 basis points.    

 (Additional reporting by Fergal Smith; Editing by Paul Simao
and Meredith Mazzilli)