CANADA FX DEBT-C$ weakens on oil, BoC outlook
* C$ slides to C$0.9742 to the U.S. dollar, or $1.0265
* Bank of Canada speech highlights medium term risks
* Bond prices edge higher
By John McCrank
TORONTO, May 16 (Reuters) - The Canadian dollar ended at its lowest closing level in nearly seven weeks on Monday as oil prices weakened and the governor of the Bank of Canada signaled there was no urgency to raise interest rates.
U.S. crude oil prices dropped more than $2 a barrel to less than $98 on receding fears about the potential impact of Mississippi River flooding on refineries in Louisiana. [ID:nN16297698] [O/R]
Canada's dollar is often influenced by the price of oil as the country is a major exporter of crude and is the biggest foreign supplier to the United States.
A speech by Bank of Canada Governor Mark Carney on Monday weighed on the currency, said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto.
"The overarching tone was that what's transpiring at the global level in terms of growth and dynamics isn't the most positive for Canada," said Sutton.
Carney outlined the risk to Canada's economy from the strong Canadian dollar and warned of spillover effects if the United States, Britain and others delay fixing their debt problems. [ID:nN16281097]
The central bank is scheduled to announce its monetary policy decision on May 31. Most market watchers expect it to keep the borrowing rate at 1.00 percent, where it has been since September following three rate hikes last year as the economic recovery gained steam.
After Carney spoke, swap markets based on the outlook for Canadian interest rates showed traders slightly trimmed their bets on the likelihood of rate increases at policy announcements in July, September, October and December. BOCWATCH
The Canadian dollar CAD=D4 ended the North American session at C$0.9742 to the U.S. dollar, or $1.0265, down from C$0.9687 to the U.S. dollar, or $1.0323, at Friday's close.
It was the lowest close since March 29.
The currency has been trending lower over the past couple of weeks after hitting a 3-1/2 year high on April 29. The weakness started with softer commodity prices, and continued as concerns increased about the outlook for global growth, along with a broadly stronger U.S. dollar, said Sutton.
Economic data on Monday had little impact on the currency. Factory sales rose 1.9 percent in March from February on the back of strong autos and aerospace production, according to Statistics Canada. The consensus forecast had been for a 1.6 percent rise. [ID:nN16132944]
Instead, traders are looking ahead to two big reports -- inflation for the month of April and retail sales for March -- coming at the end of the week.
Canadian bond prices rose across the board, as the speech by the Bank of Canada's Carney helped give a bid to safe-haven government debt.
"Carney's comments did have some influence on the bond market in a positive sense, basically reiterating the obstacles that he sees in terms of the medium-term economic outlook," said Mark Chandler, fixed income strategist at RBC Capital Markets in Toronto.
He said the inability of the equity markets to hold on to their early gains also added to the allure of bonds.
The Toronto Stock Exchange's main index was up more than 1 percent early on in the day, but gave up most of the gains as energy issues fell with oil prices.
Canada's two-year bond CA2YT=RR ended up 4 Canadian cents to yield 1.668 percent, while the 10-year bond CA10YT=RR gained 5 Canadian cents to yield 3.189 percent.
(Additional reporting by Ka Yan Ng; Editing by Frank McGurty)
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