CANADA FX DEBT-C$ weakens with oil's retreat, fading risk appetite

Tue Feb 23, 2016 4:26pm EST
 
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(Adds analyst comment, updates prices)
    * Canadian dollar at C$1.3768 or 72.63 U.S. cents
    * Bond prices lower across the maturity curve

    By Alastair Sharp
    TORONTO, Feb 23 (Reuters) - The Canadian dollar lost ground
against its U.S. counterpart on Tuesday as oil prices fell and
risk appetite faded, while losses were more pronounced against
the safe-haven Japanese yen.
    Oil prices lost 4 percent after Saudi and Iranian oil
ministers poured cold water on hopes for a coordinated move to
limit production amid a global supply glut. 
    "We've seen hope fade in the energy market that there would
be any near-term supply cuts to shore up the price," said    
Scott Smith, senior market analyst at Cambridge Global Payments
in Toronto. "That's really been driving the bus for the Canadian
dollar today."
    Weaker stock markets here and overseas were an additional
headwind for the risk-sensitive commodity currency. 
    The Canadian dollar ended the session trading at
C$1.3768 to the greenback, or 72.63 U.S. cents, weaker than the
Bank of Canada's official close of C$1.3712, or 72.93 U.S.
cents.
    The currency's strongest level of the session was C$1.3696,
while its weakest level was C$1.3821.
    U.S. crude prices settled down 4.6 percent at $31.87
a barrel, while Brent  lost 3.8 percent to $33.38.
    Cambridge's Smith said the currency would likely fluctuate
with oil in the short-term and could see further weakness in the
next three to six months.
    It weakened to 81.50 yen as the Japanese currency
outperformed.
    Canada's Liberal government said on Monday it will stick to
plans to invest in infrastructure projects even as it warned it
would run much bigger budget deficits than previously
anticipated. 
    Adding private sector investment to government
infrastructure projects could spur even greater spending,
reducing the odds of another Bank of Canada rate cut.
 
    Canadian government bond prices were lower across the
maturity curve. The two-year price fell 4.5 Canadian
cents to yield 0.475 percent and the benchmark 10-year
 was down 13 Canadian cents to yield 1.138 percent.
    Bank of Canada Deputy Governor Lawrence Schembri will
deliver a speech on Wednesday, addressing the topic of elevated
household debt and the risk to financial stability.

 (Additional reporting by Fergal Smith; Editing by Bill Trott
and Nick Zieminski)