CANADA FX DEBT-C$ weakens, but losses pared as oil turns higher
* Canadian dollar at C$1.3050, or 76.63 U.S. cents * Bond prices lower across steeper maturity curve TORONTO, March 21 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Monday, although losses were pared after crude oil prices turned higher, while domestic attention turned to Tuesday's federal budget. The currency had touched a nearly five-month high on Friday at C$1.2924 after strength in retail sales bolstered expectations first-quarter growth will surpass the Bank of Canada's 1 percent forecast. However, it is overbought and "long overdue for consolidation," according to a research note Monday morning from Bipan Rai, executive director, macro strategy CIBC Capital Markets. Oil prices recovered from early losses as the market digested news of a modest rise in U.S. drilling activity, though uncertainty lingered over the outcome of a meeting of the world's major exporters next month to discuss freezing output. U.S. crude prices were up 0.46 percent to $39.62 a barrel. The new Liberal government will introduce its first budget on Tuesday and is expected to run a C$29 billion ($22 billion) deficit in fiscal 2016-17, a Reuters poll last week showed, as it borrows more to increase infrastructure spending in the hopes of boosting growth. At 9:19 a.m. EDT (1319 GMT), the Canadian dollar was trading at C$1.3050 to the greenback, or 76.63 U.S. cents, weaker than Friday's official close of C$1.3037, or 76.70 U.S. cents. The currency's strongest level of the session was C$1.2995, while its weakest was C$1.3093. Speculators further cut bearish bets on the Canadian dollar from extreme levels seen in January, Commodity Futures Trading Commision (CFTC) data showed on Friday. Net short Canadian dollar positions fell to 16,826 contracts in the week ended March 15 from 25,781 in the prior week. At the end of January, net short exposure was the largest in five months at 66,819 contracts. Canadian government bond prices were lower across the maturity curve in sympathy with U.S. Treasuries. The two-year price fell 2.5 Canadian cents to yield 0.554 percent and the benchmark 10-year was down 25 Canadian cents to yield 1.311 percent. The curve steepened, as the spread between the 2-year and 10-year yields widened by 1.5 basis points to 75.7 basis points, indicating underperformance for longer-dated maturities. (Reporting by Fergal Smith; Editing by Nick Zieminski)
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