CANADA FX DEBT-C$ notches small gain in choppy trade

Thu Feb 11, 2016 4:27pm EST
 
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(Adds analyst comments, prime minister's comments, updates
prices)
    * Canadian dollar at C$1.3921 or 71.83 U.S. cents
    * Bond prices lower across the maturity curve
    * Canada 10-year yield hit new record low of 0.921 percent

    By Fergal Smith
    TORONTO, Feb 11 (Reuters) - The Canadian dollar rose
slightly against its U.S. counterpart on Thursday, reversing
earlier losses as a potential move toward oil production cuts
tempered a reduction in risk appetite.
    The risk-sensitive commodity-linked currency fell to its
lowest in more than a week as crude oil prices and stocks fell,
then rebounded amid speculation that OPEC was moving closer to
oil production cuts. 
    "It's been a choppy day," said Scott Smith at Cambridge
Global Payments.    
    A renewed slump in banking and mining stocks weighed on risk
appetite. Markets have worried this week that negative rates
have hit banks' ability to earn margins on interest rates.
 
    U.S. oil prices fell for a sixth straight day, approaching
12-year lows hit last month, weighed by brimming crude
inventories and a Goldman Sachs forecast that prices would
remain low and volatile until the second half of the year. 
    Lower oil prices added to risk that the Bank of Canada will
have more of a bias toward rate cuts, said Smith. 
    The Canadian dollar settled at C$1.3921 to the
greenback, or 71.83 U.S. cents, slightly stronger than
Wednesday's official close of C$1.3933, or 71.77 U.S. cents.
    The currency's strongest level of the session was C$1.3884,
while it hit its weakest since Feb. 3 at C$1.4018.
    Against the safe-haven Japanese yen, the Canadian dollar
touched its lowest since Jan. 20 at 79.27 yen.    
    Domestic data had little impact. New home prices edged up
less than expected in December, while Canada's job
vacancy rate fell to 2.6 percent in the third quarter.
 
    Canadian government bond prices were lower across the
maturity curve, with the two-year price down 2.5
Canadian cents to yield 0.368 percent and the benchmark 10-year
 falling 7 Canadian cents to yield 1.006 percent.
    The 10-year yield hit a record low at 0.921 percent on  the
flight to safety during the session, after having dropped below
1 percent for the first time ever on Wednesday.
    The Canada-U.S. two-year bond spread was 5.2 basis points
less negative at -29.4 basis points, while the 10-year spread
was 5.8 basis points less negative at -65.1 basis points as
Treasuries outperformed.
    The Canadian government could find it hard to balance the
budget by 2019/20 as promised if the economy continues to
struggle, Prime Minister Justin Trudeau said in an interview
published on Thursday. 

 (Reporting by Fergal Smith; Editing by Bernadette Baum and
David Gregorio)