CANADA FX DEBT-C$ slips, further slide seen if oil drops

Tue Mar 8, 2011 8:23am EST
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   * C$ slips to $1.0274 as oil eases from highs
 * Bond prices mirror U.S. Treasuries ahead of supply
 TORONTO, March 8 (Reuters) - The Canadian dollar was
slightly softer against the U.S. currency on Tuesday and could
be ripe for a steep fall if crude prices slide from 2-1/2 year
highs fueled by unrest in Libya and oil disruption worries.
 Stuck in a well-defined range recently between
C$0.97-C$0.98, market players say oil could be the catalyst
that tips it outside the range.
 Crude oil prices fell after Kuwait's oil minister said OPEC
was considering boosting production for the first time in more
than two years. [O/R]
 Michael O'Neill, managing director, at Knightsbridge
Foreign Exchange, said if oil retreats to below $100 a barrel,
the Canadian dollar would probably follow suit and tumble
towards C$0.9850, a level not seen in more than a week.
 "If oil prices retreat a bit further, the extremely short
U.S. dollar/Canada dollar positions are going to get unwound.
It's vulnerable for a correction," he said.
 "I think everything that made Canada strong is priced in.
All the good news is in the current level, maybe more. I think
the market has gotten ahead of themselves."
 At 8 a.m. (1300 GMT), the Canadian dollar was at C$0.9733
to the U.S. dollar, or $1.0274, down slightly from C$0.9729 to
the U.S. dollar, or $1.0279, at Monday's close.
 While the near-term market focus remains centered on the
price of oil and developments in Libya, several high-profile
pieces of Canadian data are still to come.
 Market players are looking for the Canadian economy to show
momentum in the recovery in both its trade and jobs figures,
due Thursday and Friday, respectively.
 If any of the data is softer-than-expected, the Canadian
dollar will likely sell off and could trim anticipation of an
interest rate hike before midyear, analysts said.
 The central bank has left its key rate unchanged at a
still-low 1 percent since September after three consecutive
rate increases last year.
 Overnight index swaps, which trade based on expectations
for the key central bank rate, imply a fully priced-in rate
increase on the bank's Sept. 7 decision date. BOCWATCH
 Canadian government bonds were flat across the curve,
mirroring U.S. Treasuries, which were awaiting $66 billion in
new supply this week.
 The two-year bond CA2YT=RR was unchanged to yield of
1.853 percent, while the 10-year bond CA10YT=RR edged up 2
Canadian cents to yield 3.351  percent.
 (Reporting by Ka Yan Ng, Editing by Chizu Nomiyama)