CANADA FX DEBT-C$ weakens on oil, BoC outlook

Mon May 16, 2011 5:17pm EDT
 
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 * 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.
 BONDS RISE
 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)