CANADA FX DEBT-C$ weakens on pre-budget position squaring

Mon Mar 21, 2016 4:39pm EDT
 
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(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)