CANADA FX DEBT-C$ weakens to 1-week low on data, losses pared as oil rises

Tue Apr 5, 2016 4:32pm EDT
 
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(Adds analyst quote, details on Bank of Canada policymaker,
updates prices)
    * Canadian dollar ended at C$1.3157, or 76.01 U.S. cents
    * Loonie touches its weakest since March 28 at C$1.3219
    * Bond prices higher across flatter maturity curve

    By Fergal Smith
    TORONTO, April 5 (Reuters) - The Canadian dollar weakened to
a one-week low against its U.S. counterpart on Tuesday after
disappointing Canadian trade data and as risk appetite
deteriorated, although losses were pared as oil prices turned
higher.
    Canada's trade deficit unexpectedly jumped to C$1.91 billion
($1.45 billion) in February from C$628 million in January as
exports slumped by their most in nearly seven years.
 
    "It suggests to me that the momentum that we seemed to have
at the turn of the year in the economy is again going to be a
false dawn," said HSBC Bank Canada Chief Economist David Watt.
    The implied probability of a Bank of Canada rate cut this
year rose to 24 percent from 17 percent before the data. It had
been above 50 percent a little more than one month ago.
 
    The data fed anxiety that the near 12 percent rebound in the
Canadian dollar from a 12-year low in January at C$1.4689 will
hinder rebalancing of Canada's economy towards non-energy
exports. 
    "Not cause for panic yet, but I think some concern which may
be echoed by the Bank of Canada next week," said Scott Smith,
senior market analyst at Cambridge Global Payments.    
    The risk-sensitive, commodity-driven currency had already
weakened before the trade data as investors sought refuge in
safe-haven assets such as the Japanese yen and gold.
  
    However, U.S. crude prices settled at $35.89 a
barrel, up 0.5 percent, after Kuwait said an output freeze by
major oil producers would proceed without Iran.    
    The Canadian dollar ended at C$1.3157 to the
greenback, or 76.01 U.S. cents, weaker than Monday's close of
C$1.3072, or 76.50 U.S. cents.
    The currency's strongest level of the session was C$1.3069,
while it touched its weakest since March 28 at C$1.3219.
    Meanwhile, China's transition to a more sustainable pace of
growth is welcome, but it will take time and could be marked by
periods of economic and financial volatility, Bank of Canada
Senior Deputy Governor Carolyn Wilkins said. 
    Canadian government bond prices were higher across the
maturity curve, with the two-year price up 5 Canadian
cents to yield 0.52 percent and the benchmark 10-year
 rising 52 Canadian cents to yield 1.167 percent.
    The 10-year yield touched its lowest since Feb. 29 at 1.157
percent.
    The curve flattened in sympathy with U.S. Treasuries, as the
spread between the 2-year and 10-year yields narrowed by 3.3
basis points to 64.7 basis points, indicating outperformance for
longer-dated maturities.

 (Reporting by Fergal Smith; Editing by Lisa Von Ahn and Chris
Reese)