CANADA FX DEBT-C$ pressured by lower oil prices, dovish central bank
* Canadian dollar at C$1.2574 or 79.53 U.S. cents * Bond prices mostly higher across the maturity curve (Adds details on Bank of Canada, quotes; updates prices) By Solarina Ho TORONTO, Feb 10 (Reuters) - The Canadian dollar retreated against its U.S. counterpart on Tuesday, weighed by dovish comments from the Bank of Canada and a slump in oil prices following a report that supplies of crude may approach record highs. The International Energy Agency said in its monthly report that oil supplies remained abundant and it would take time for investment cuts to make more than a relatively small dent in production, keeping prices low. That took the price U.S. front-month crude oil down $2.84, or 5.4 percent, to $50.02 a barrel. As a major oil exporter, the Canadian dollar's moves in recent months have largely been driven by a steep plunge in crude prices. The loonie's losses on Tuesday were compounded by dovish comments from two senior policymakers. Bank of Canada Governor Stephen Poloz said that he has not been talking down the Canadian dollar and that it has fallen because of economic developments, particularly the collapse in oil prices. Separately, Senior Deputy Governor Carolyn Wilkins said in a speech the Canadian economy is still operating below its potential, pointing to slack in the labor market and calling the recent sharp drop in oil prices a "setback." The loonie hit a session low of C$1.2625 following the speech before trimming some declines. "The view there is that it reaffirms an expectation we were having that the bank is much closer to cutting the overnight rate again, and from that perspective we have greater conviction that March is the meeting date in play," said Mazen Issa, senior Canada macro strategist at TD Securities in Toronto. The Canadian dollar ended the North American session at C$1.2574 to the greenback, or 79.53 U.S. cents, softer than Monday's close of C$1.2465, or 80.22 U.S. cents. The Canadian dollar has been hit hard by diverging monetary policies between the United States, which is widely expected to hike interest rates this year, and Canada, which cut rates last month and is expected to do so again this spring. A stronger greenback, powered by broadly higher U.S. Treasury yields, added pressure on the loonie. Canadian government bond prices were mostly higher across the maturity curve, with the two-year up 11-1/2 Canadian cents to yield of 0.428 percent and the benchmark 10-year up 2 Canadian cents to yield 1.432 percent. (Additional reporting by Leah Schnurr in Ottawa, editing by G Crosse)
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