CANADA FX DEBT-C$ weakest close in almost six weeks after Fed minutes

Wed May 18, 2016 4:37pm EDT
 
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(Adds strategist comment, Fed minutes impact; updates prices)
    * Canadian dollar ends at C$1.3023, or 76.79 U.S. cents
    * Bond prices lower across the maturity curve

    By Alastair Sharp
    TORONTO, May 18 (Reuters) - The Canadian dollar weakened
sharply on Wednesday as the Federal Reserve signaled U.S.
interest rates could rise sooner than investors were
anticipating, boosting the greenback.
    The loonie settled weaker than C$1.30 for the first time
since early April, as oil prices also retreated in the face of
the Fed saying a rate hike was possible at its June meeting.
 
    Tactically, "the Fed is trying to introduce two-way risk
around the Fed meeting," said Mazen Issa, a senior foreign
exchange strategist at TD Securities.
    The Canadian dollar settled at C$1.3023 to the
greenback, or 76.79 U.S. cents, much weaker than Tuesday's close
of C$1.2903, or 77.50 U.S. cents. It last closed weaker than
that on April 7.
    The currency's strongest level of the session was C$1.2894,
while its weakest was C$1.3037. 
    It has outperformed some other major currencies against the
greenback given a sustained recovery in oil prices since
February, although last week it touched C$1.3016, its weakest in
one month.
    But closing above C$1.3020 on Wednesday makes further
dollar/Canada upside more likely, Issa said, with little
resistance noted until C$1.32.
    Hot and dry weather and strong winds were expected to push a
massive wildfire near Fort McMurray, Alberta eastward on
Wednesday, threatening facilities and work camps in the oil
sands region. 
    Economists had already been expecting a sharp slowdown in
Canada's economy after a strong start to 2016. 
    Lengthening the timeline for oil production to return to
normal levels could add downside risk to the outlook, according
to a research note on Wednesday from BMO Capital Markets, which
projects flat growth in the second quarter.
    Foreign investment in Canadian securities climbed for a
third straight month as foreigners bought a net C$17.17 billion
($13.25 billion) worth of securities in March, mainly in bonds,
Statistics Canada said. 
    Canadian government bond prices were lower across the
maturity curve, with the two-year price falling 9.5
Canadian cents to yield 0.635 percent, and the benchmark 10-year
 down 44 Canadian cents to yield 1.365 percent.
    Investors are awaiting Canadian wholesale trade data for
March, set for release on Thursday, while Canada's March retail
sales data and April inflation data are due on Friday. 

 (Additional reporting by Fergal Smith; Editing by W Simon and
James Dalgleish)