CANADA FX DEBT-C$ drops on oil, jump in current account deficit
* Canadian dollar at C$1.2550 or 79.68 U.S. cents * Bond prices mixed across the maturity curve By Solarina Ho TORONTO, March 2 (Reuters) - The Canadian dollar dropped against its U.S. counterpart on Monday, pushed down by lower oil prices and data that showed the country's current account deficit growing faster than expected. Crude prices dropped after Iran said a deal on its nuclear program could be reached this week if the West lifts sanctions, a move that could boost the country's oil exports. The price of crude, a key Canadian export, has been under pressure due to excess supply and lukewarm demand. While oil prices had their first monthly gain since last June in February, U.S. prices are still below $50 a barrel. Cheap oil helped drive Canada's current account gap to C$13.92 billion in the fourth quarter from C$9.6 billion in previous quarter, according to government data on Monday. That was the biggest deficit in a year, and exceeded forecasts. Crude's drop has also hit business confidence with activity in Canada's manufacturing sector contracting last month to its lowest level on record, according to RBC's Canadian Manufacturing Purchasing Managers' index (PMI), putting more pressure on the currency. The Canadian dollar, which was a touch stronger ahead of the data, fell to C$1.2550 to the greenback, or 79.68 U.S. cents, at 9:56 a.m. EST (1456 GMT), weaker than Friday's close of C$1.2496, or 80.03 U.S. cents. Looking ahead, Canadian growth data for the fourth quarter due on Tuesday and the Bank of Canada's latest interest rate decision on Wednesday will be in focus. The bank cut its benchmark rate by 25 basis points in January to 0.75 percent. The markets had priced in as much as an 80 percent chance of another 25 basis point rate cut this week before comments by bank Governor Stephen Poloz dispelled those expectations. Markets are now looking at about a 30 percent chance of a cut. "I think if the bank comes out suggesting they're leaving door open for rate cuts, the currency may be a touch weaker on that news," said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets. Canadian government bond prices were mixed across the maturity curve, with the longer term securities lower. The two-year was off 1 Canadian cent to yield 0.475 percent and the benchmark 10-year down 23 Canadian cents to yield 1.325 percent. (Reporting by Solarina Ho; Editing by Peter Galloway)
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