CANADA FX DEBT-C$ strengthens, move to 80 U.S. cents triggers corporate hedging

Fri Apr 29, 2016 3:35pm EDT
 
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article
[-] Text [+]

(Adds dealer quotes, details on currency's performance, updates
prices)
    * Canadian dollar at C$1.2538, or 79.76 U.S. cents
    * Loonie touched its strongest since July 1, 2015 of
C$1.2497
    * Bond prices lower across the maturity curve

    By Fergal Smith
    TORONTO, April 29 (Reuters) - Canada's dollar strengthened
to a nearly 10-month high against a broadly weaker U.S.
counterpart on Friday, but some gains were pared as oil turned
lower and after corporate hedgers sold the currency at 80 U.S.
cents.
    The loonie, as Canada's dollar is commonly known, has
rallied 17 percent from a 12-year low in January of C$1.4689,
helped by better-than-expected domestic economic activity,
fiscal stimulus and rebounding oil prices.
    However, it had trouble on Friday breaking convincingly
through C$1.2500, or 80 U.S. cents, due to selling by corporate
hedgers, said Blake Jespersen, managing director, foreign
exchange sales at BMO Capital Markets.
    "80 (U.S.) cents seems to be a nice psychological level for
most people, so seeing a fair bit of resistance there," he
added.
    Oil prices dipped after an early rise to 2016 peaks. U.S.
crude settled at $45.92 a barrel, down 0.24 percent.
 
    Canada's economy contracted 0.1 percent in February, as
expected, after climbing 0.6 percent in January. 
    It leaves the economy on track to grow 3 percent in the
first quarter, according to Richard Gilhooly, the head of rates
strategy at CIBC Capital Markets.    
    The U.S. dollar fell against a basket of major
currencies, including deep losses against the Japanese yen in
the aftermath of the Bank of Japan's decision not to ease policy
further on Thursday. 
    At 3:07 p.m. EDT (1907 GMT), the Canadian dollar 
was trading at C$1.2538 to the greenback, or 79.76 U.S. cents,
slightly stronger than Thursday's close of C$1.2549, or 79.69
U.S. cents.
    The currency's weakest level was C$1.2588, while it touched
its strongest since July 1, 2015 of C$1.2497.
    A shift in expectations for the direction of Canadian
interest rates has added to recent support for the loonie.
Overnight index swaps (OIS) imply an 18 percent chance of a rate
hike this year, a swing from the more than 50 percent chance of
a cut seen at the beginning of March. 
    However, the Bank of Canada will not want to see additional
Canadian dollar strength which might hamper "export
diversification," Gilhooly said.
    Canadian government bond prices were lower across the
maturity curve, with the two-year price down 2.5
Canadian cents to yield 0.685 percent and the benchmark 10-year
 falling 28 Canadian cents to yield 1.506 percent.
    The Canada-U.S. 10-year spread was 4.9 basis points less
negative at -31.3 basis points, its smallest gap since Jan. 19,
2015, as Canadian government bonds underperformed.

 (Reporting by Fergal Smith; Editing by Paul Simao and Chizu
Nomiyama)