CANADA FX DEBT-C$ weakens on pre-budget position squaring
(Adds analyst quote, details on Bank of Canada; updates prices) * Canadian dollar ends at C$1.3085, or 76.42 U.S. cents * Bond prices lower across the maturity curve By Fergal Smith TORONTO, March 21 (Reuters) - The Canadian dollar weakened against a broadly firmer U.S. counterpart on Monday as position squaring ahead of Canada's federal budget offset the tailwind from higher crude oil prices. The currency had touched a nearly five-month high on Friday at C$1.2924 after strength in Canadian retail sales bolstered expectations that first-quarter growth will surpass the Bank of Canada's 1 percent forecast. However, the currency reversed course to close lower on Friday and weakened further on Monday. "There has been a little bit of position squaring in the session again as we head into tomorrow's federal budget," said Matt Perrier, managing director of foreign exchange sales at BMO Capital Markets. The new Liberal government will introduce its first budget on Tuesday and is expected to run a C$29 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. The Bank of Canada has been awaiting the "positive impact" of expected fiscal measures. It plans to incorporate the measures into its April projection. The currency was overbought and "long overdue for consolidation," according to a research note from Bipan Rai, executive director, macro strategy at CIBC Capital Markets. The U.S. dollar rose against a basket of major currencies after multiple Federal Reserve officials sounded a hawkish tone. Oil prices rose as data showed a drawdown at the Cushing, Oklahoma, delivery hub for U.S. crude and ahead of front-month contract expiry in the U.S. crude futures. U.S. crude prices settled at $39.91 a barrel, up 1.19 percent. The Canadian dollar ended at C$1.3085 to the greenback, or 76.42 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 level was C$1.3093. Speculators further cut bearish bets on the Canadian dollar from extreme levels seen in January, Commodity Futures Trading Commision data showed on Friday. Canadian government bond prices were lower across the maturity curve, with the two-year price down 4 Canadian cents to yield 0.563 percent and the benchmark 10-year falling 19 Canadian cents to yield 1.305 percent. The Canada-U.S. two-year bond spread was 1.6 basis points more negative at -31.3 basis points, while the 10-year spread was 2.5 basis points more negative at -61.2 basis points as Treasuries underperformed. (Reporting by Fergal Smith; Editing by Nick Zieminski and Leslie Adler)
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