CANADA FX DEBT-C$ gains with oil price jump, dovish Fed minutes

Wed Apr 6, 2016 5:03pm EDT
 
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(Adds strategist comment, details, updates prices)
    * Canadian dollar at C$1.3094, or 76.37 U.S. cents
    * Bond prices lower across the maturity curve

    By Alastair Sharp
    TORONTO, April 6 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Wednesday as oil
prices jumped 5 percent and minutes from the most recent U.S.
Federal Reserve meeting confirmed a dovish tone.
    The loonie, as the Canadian currency is colloquially known,
had rallied sharply since mid-January but has mostly traded in a
tight C$1.30-C$1.32 range so far this month.
    "We're consolidating for now, we think that's the right play
for dollar/Canada," said Bipan Rai, director of foreign exchange
strategy at CIBC Capital Markets.
    Fed policymakers last month debated an April interest rate
hike, though a consensus emerged that risks from a global
economic slowdown warranted a cautious approach, the minutes
showed. 
    The Canadian dollar settled at C$1.3094 to the
greenback, or 76.37 U.S. cents, stronger than Tuesday's close of
C$1.3157, or 76.01 U.S. cents. 
    Rai said the direction of the loonie is largely dependant on
the Fed's next moves, which CIBC expects could include two rate
hikes this year, a more aggressive path than the broader market
is anticipating.
    "The market, in our view, is mispricing the Fed," he said. 
    Meanwhile prices for oil, a major Canadian export, surged by
the most in three weeks after the U.S. government reported a
surprise draw in domestic crude stockpiles. 
    CIBC's Rai said the Canadian currency could also get a boost
next week if the federal government's stimulative budget from
March prompts the Bank of Canada to shorten the time before it
expects to hit its inflation target. 
    Canadian government bond prices were lower across the
maturity curve, with the two-year price falling 5
Canadian cents to yield 0.545 percent and the benchmark 10-year
 down 40 Canadian cents to yield 1.211 percent.
    The 10-year yield touched on Tuesday its lowest in five
weeks at 1.157 percent.
    The pace of purchasing activity in Canada slowed again in
March as measures of inventories and supplier deliveries
contracted further, the Ivey Purchasing Managers Index showed.
 

 (Additional reporting by Fergal Smith; Editing by Meredith
Mazzilli and Diane Craft)