CANADA FX DEBT-C$ weakens as Bank of Canada counsels caution, oil retreats
(Adds analyst quotes, details on Bank of Canada, updates prices) * Canadian dollar at C$1.2804, or 78.10 U.S. cents * Loonie touched its strongest since July 15 at C$1.2744 * Bond prices higher across the maturity curve By Fergal Smith TORONTO, April 13 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Wednesday as oil prices retreated and after the Bank of Canada counseled caution on the country's growth outlook. The central bank kept interest rates steady, saying weaker global growth, a less favorable U.S. outlook and shrinking business investment would have driven the economic outlook lower if not for the boost from the government's fiscal stimulus. "They accentuated almost every negative they could," said Doug Porter, chief economist at BMO Capital Markets. The loonie has rebounded 15 percent after hitting a 12-year low in January, triggering concern among some analysts that its recovery will choke off exports. That risk was not lost on Bank of Canada Governor Stephen Poloz. At a press conference following the interest rate announcement, he said the stronger currency can put at risk rotation of the economy towards non-resource growth. Still, the implied probability of a Bank of Canada rate cut this year has dropped to less than 10 percent from more than 50 percent at the start of March. U.S. crude prices were down 0.50 percent at $41.96 a barrel as comments from Russia's energy minister added to doubts that a producer meeting set for Sunday would yield a positive outcome. The "risk-reward" profile does not favor buying Canadian dollars ahead of Sunday's meeting, said Dean Popplewell, chief currency strategist at OANDA. Orders to buy U.S. dollars start to step up around the C$1.2500 psychological threshold, he added. At 1:54 p.m. EDT (1754 GMT), the Canadian dollar was trading at C$1.2804 to the greenback, or 78.10 U.S. cents, weaker than Tuesday's close of C$1.2759, or 78.38 U.S. cents. The currency's weakest level was C$1.2827, while it touched its strongest since July 15 last year at C$1.2744. Risk appetite rose after surprisingly upbeat Chinese trade data offered hope Asia's biggest economy is finally stabilizing. However, lower U.S. retail sales in March added to evidence that economic growth stumbled in the first quarter. Canadian government bond prices were higher across the maturity curve, with the two-year price up 3 Canadian cents to yield 0.568 percent and the benchmark 10-year rising 44 Canadian cents to yield 1.244 percent. The Canada-U.S. two-year bond spread was 2.9 basis points more negative at -18.9 basis points, while the 10-year spread was 3.4 basis points more negative at -52.2 basis points as Canadian government bonds outperformed. (Reporting by Fergal Smith; Editing by Chizu Nomiyama and James Dalgleish)
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