CANADA FX DEBT-C$ hits one-week low as oil falls, Fed talk boosts greenback
(New throughout, updates prices and market activity, adds strategist comment) * Canadian dollar settles at C$1.3214, or 75.68 U.S. cents * Bond prices higher across flatter maturity curve By Alastair Sharp TORONTO, March 23 (Reuters) - The Canadian dollar weakened to a one-week low against its U.S. counterpart on Wednesday as crude oil prices fell and the greenback was boosted by comments from Federal Reserve officials in support of rate hikes. Oil prices lost 4 percent as U.S. crude stockpiles rose more than expected, reinforcing concerns about a stubborn global glut. "Crude still matters," said Darcy Browne, managing director of foreign exchange sales at CIBC Capital Markets. "It's still one of the driving factors on a short-term basis. That and the Fed." One Fed official said the U.S. central bank should consider hiking interest rates as early as next month and three times this year, while another said he expects two hikes this year. Another Fed official called inflation expectations that were stabilizing "a hopeful sign". The Canadian dollar settled at C$1.3214 to the greenback, or 75.68 U.S. cents, much weaker than Tuesday's official close of C$1.3035, or 76.72 U.S. cents. The currency's strongest level of the session was C$1.3038, while it touched its weakest since March 16 at C$1.3220. Tuesday's federal budget had little impact on the Canadian dollar, although the fiscal stimulus announced is expected to keep the Bank of Canada from moving on rates this year. The implied probability of a rate cut by year end has dropped to less than 20 percent from 87 percent a little more than one month ago. "There was nothing in the details (of the federal budget) to suggest it should help the Canadian dollar, especially at the levels that the U.S. dollars has been oversold to," CIBC's Browne said. The new Liberal government said in a bid to revive growth it would run a C$29.4 billion deficit for fiscal 2016-17, close to market expectations. Canadian government bond prices were higher across the maturity curve, with the two-year price up 4.5 Canadian cents to yield 0.560 percent and the benchmark 10-year rising 79 Canadian cents to yield 1.244 percent. The curve flattened, as the spread between the 2-year and 10-year yields narrowed by 5.9 basis points to 68.4 basis points, indicating outperformance for longer-dated maturities. (Additional reporting by Fergal Smith; Editing by Meredith Mazzilli)
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