CANADA FX DEBT-C$ strengthens, rebounds from earlier 1-week low, as oil rallies

Wed Feb 24, 2016 4:52pm EST
 
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(Adds analyst quote, details on Bank of Canada speech, Alberta
deficit, government bond auction, updates prices)
    * Canadian dollar at C$1.3687 or 73.06 U.S. cents
    * Bond prices lower across the maturity curve

    By Fergal Smith
    TORONTO, Feb 24 (Reuters) - The Canadian dollar rallied
against its U.S. counterpart on Wednesday, rebounding from a
one-week low earlier in the session as oil prices and U.S. stock
markets rose after previous losses.
    U.S. government data that showed strong demand for gasoline
provided the catalyst for a turnaround in crude oil and stocks,
providing support for the risk-sensitive commodity linked
currency. 
    "The Canadian dollar is very much still leveraged to what
happens in the crude market," said Bipan Rai, executive
director, macro strategy at CIBC Capital Markets.      
    U.S. crude prices settled at $32.15 a barrel, up 0.88
percent.    
    Bank of Canada Deputy Governor Lawrence Schembri said that
the Canadian financial system remains resilient and could
withstand a major shock. 
    Canada's housing market will be a net contributor to
economic growth in the coming year, boosted by rising prices,
but become a drag soon after due to a slowdown in buying and
high levels of household debt, a Reuters poll found.
 
    The Canadian dollar ended at C$1.3687 to the
greenback, or 73.06 U.S. cents, stronger than Tuesday's official
close of C$1.3768, or 72.63 U.S. cents.
    The currency's strongest level of the session was C$1.3678,
while it hit its weakest since Feb. 17 at C$1.3860.
    The Canadian oil-producing province of Alberta will post a
C$6.3 billion deficit this fiscal year as the global crude slump
continues to batter the once-booming economy. 
    Earlier in the week, the federal government warned it would
run much bigger deficits than anticipated. However, it will
stick to plans to invest in infrastructure projects.
 
    Adding private-sector investment to 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, with the two-year price down 5.5
Canadian cents to yield 0.495 percent and the benchmark 10-year
 falling 35 Canadian cents to yield 1.158 percent.
    The Canada-U.S. 10-year spread was 3.2 basis points higher
at -59.2 basis points as Canadian government bonds
underperformed.     
    The government of Canada C$3.7 billion two-year bond auction
produced a 0.479 percent average yield. 

 (Reporting by Fergal Smith; Editing by Meredith Mazzilli and
Andrew Hay)