CANADA FX DEBT-C$ strengthens to a 1-week high as oil breaches $50 a barrel

Thu May 26, 2016 9:51am EDT
 
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* Canadian dollar at C$1.2921, or 77.39 U.S. cents
    * Loonie touched its strongest since May 18 at C$1.2912
    * Bond prices higher across the maturity curve

    TORONTO, May 26 (Reuters) - The Canadian dollar strengthened
to a one-week high against its U.S. counterpart on Thursday as
oil moved above $50 a barrel for the first time in nearly seven
months.
    U.S. crude prices were up 0.93 percent to $50.02 a
barrel, helped by signs that a global supply glut that has
plagued the market for nearly two years is easing. 
    The loonie's gains come one day after the Bank of Canada was
less dovish than some investors had expected. The central bank
kept interest rates on hold at 0.50 percent, saying the economy
would shrink in the second quarter as a result of damage from
recent wildfires in Alberta before rebounding later in the year.
 
    Overnight index swaps reflected the market perception of
almost no chance of a rate cut this year after having implied a
40 percent probability just two weeks ago when the wildfire cut
oil production. 
    At 9:29 a.m. EDT (1329 GMT), the Canadian dollar 
was trading at C$1.2921 to the greenback, or 77.39 U.S. cents,
stronger than Wednesday's close of C$1.3022, or 76.79 U.S.
    The currency's weakest level was C$1.3036, while it touched
its strongest since May 18 at C$1.2912.
    Domestic data for March was mixed.
    Average weekly earnings of non-farm payroll employees rose
0.5 percent from the previous month and the number of non-farm
payroll jobs increased by 25,300, data from Statistics Canada
showed.
    However, separate data from PayNet showed that borrowing
activity by Canadian small businesses fell for the fourth month
in a row, suggesting firms' appetite for investment remained
weak and boding poorly for economic growth. 
    Canadian government bond prices were higher across the
maturity curve, with the two-year price up 1 Canadian
cent to yield 0.636 percent and the benchmark 10-year
 rising 28 Canadian cents to yield 1.355 percent.
    The Canada-U.S. two-year bond spread was 2.4 basis points
less negative at -25.5 basis points, as Canadian government
bonds underperformed at the front of the curve ahead of a 2-year
auction in Canada.
    The Bank of Canada will sell C$3.9 billion of 2-year bonds
on behalf of the Government of Canada, expected to attract
"decent demand" after recent cheapening at the front of the
curve, according to a research note on Thursday from BMO Capital
Markets.

 (Reporting by Fergal Smith Editing by W Simon)