CANADA FX DEBT-C$ weakens despite oil rally

Mon Sep 26, 2016 5:13pm EDT
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(Recasts with Canadian currency weaker; adds comment; updates
    * Canadian dollar ends at C$1.3237, or 75.55 U.S. cents
    * Bond prices higher across yield curve

    By Alastair Sharp and Fergal Smith
    TORONTO, Sept 26 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Monday despite rising oil
prices, as investors turned cautious ahead of the first U.S.
presidential debate. 
    "The Canadian dollar hasn't been able to take advantage of"
the higher oil prices, said Darren Richardson, a senior
corporate dealer at CanadianForex. He added that the
commodity-linked currency had been "caught up in that negative
sentiment" that had also broadly weighed on stock markets.
    The Canadian dollar settled at C$1.3237 to the
greenback, or 75.55 U.S. cents, weaker than Friday's close of
C$1.3171, or 75.92 U.S. cents.
    Oil settled up 3 percent as the world's largest producers
gathered in Algeria to discuss ways to support prices. 
    Canadian diplomats are fanning out across the United States
to talk up the benefits of trade with state and local leaders
and counter what senior officials see as a worrying mood of
protectionism swirling through the U.S. election campaign.
    The currency's slip followed losses on Friday as oil tumbled
and domestic inflation and retail sales data disappointed.
    Talk that the Bank of Canada was more inclined to ease
monetary policy than tighten it was revived after Friday's data
showed Canada's annual inflation rate in August dipped to a
10-month low and retail sales unexpectedly fell in July.
    The implied probability of a Bank of Canada rate cut by
mid-2017 has increased to more than 40 percent from less than 20
percent before the inflation report, overnight index swaps data
    Canadian government bond prices were higher across the yield
curve, with the two-year up 13.5 Canadian cents to
yield 0.497 percent and the benchmark 10-year rising
a full Canadian dollar to yield 0.995 percent.
    The 10-year yield has tumbled from a 1.281 percent peak in
mid-September. Earlier in the session, it hit its lowest level
since Sept. 8, at 0.990 percent.
    The currency's strongest level of the Monday session was
C$1.3136, while it touched its weakest level in more than a week
at C$1.3243.
    Speculators pared bullish bets on the Canadian dollar for
the third straight week, Commodity Futures Trading Commission
data showed on Friday. Net long Canadian dollar positions dipped
to 16,303 contracts in the week ended Sept. 20 from 17,058
contracts in the prior week. 

 (Editing by Lisa Von Ahn and Leslie Adler)