CANADA FX DEBT-C$ strengthens to a 3-month high on oil rally, solid trade data
(Adds analyst quote, details on speculators, updates prices) * Canadian dollar ended at C$1.3324, or 75.05 U.S. cents * Currency touches its strongest since Dec. 3 at C$1.3317 * Bond prices lower across a steeper maturity curve By Fergal Smith TORONTO, March 4 (Reuters) - The Canadian dollar strengthened to a three-month high against its U.S. counterpart on Friday as commodity markets rallied and solid trade data lessened prospects of a Bank of Canada interest rate cut, while a drop in U.S. wages dented the greenback. Canadian exports rose for a third consecutive month, while increased trade with the United States supported hopes for reorientation of Canada's economy toward the non-resource sector. "This is the sort of data they (the Bank of Canada) want to see," said Andrew Kelvin, senior rates strategist at TD Securities. The implied probability of a rate cut this year dipped slightly from before the data to 41 percent. It has tumbled from 80 percent last week when Finance Minister Bill Morneau said the government would stick to plans to stimulate the economy in a March 22 federal budget. U.S. crude prices settled nearly 4 percent higher at $35.92 a barrel as this week's rally revived after a one-day pause. The Canadian currency gyrated after U.S. data revealed a surge in February payrolls, but a drop in wages that may leave the Federal Reserve in no hurry to hike interest rates. The Canadian dollar ended at C$1.3324 to the greenback, or 75.05 U.S. cents, stronger than Thursday's close of C$1.3396, or 74.65 U.S. cents. The currency's weakest level of the session was C$1.3472, while it touched its strongest since Dec. 3 at C$1.3317. Bearish bets by speculators against the Canadian dollar were pared further after reaching five-month highs in January. Net short Canadian dollar positions decreased to 30,478 contracts in the week ended March 1 from 36,940 the prior week, Commodity Futures Trading Commission data showed. Global market participants have been "wrong-footed" by the currency's rally, said Brad Schruder, director of corporate sales and structuring at BMO Capital Markets, but the currency may have overshot and be near a top. Canada posted a smaller-than-expected trade deficit in January. Exports reaching a record C$46.0 billion, while export volumes surged 3.6 percent. Canadian government bond prices were lower across the maturity curve, with the two-year price down 3 Canadian cents to yield 0.527 percent and the benchmark 10-year falling 28 Canadian cents to yield 1.252 percent. Recent steepening in the curve was extended as longer-dated maturities underperformed. The spread between the 2-year and 10-year yields widened by 1.6 basis points to reach its widest since Feb. 5 at 72.5 basis points. (Editing by Bernadette Baum and James Dalgleish)
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