CANADA FX DEBT-C$ slips as oil rally stalls, soft U.S. data in focus

Fri May 15, 2015 4:59pm EDT
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(Updates throught with strategist comments, closing figures)
    * Canadian dollar at C$1.2022 or 83.18 U.S. cents
    * Bond prices higher across the maturity curve

    By Solarina Ho
    TORONTO, May 15 (Reuters) - The Canadian dollar was a touch
weaker against its U.S. counterpart on Friday, as U.S. crude
prices fell and traders speculated whether the oil rally over
the last several weeks was petering out.
    U.S. crude futures have jumped nearly 30 percent since late
March even as U.S. oil inventories remain near 80-year highs,
prompting some market participants to believe the market is
headed for a correction. 
    The Canadian dollar has been heavily driven by the price of
crude, a major Canadian export.
    The softer loonie came even as the greenback, another key
driver, was under pressure after data showed industrial
production unexpected fell for a fifth straight month in April,
slipping 0.3 percent.
    Other numbers showed a drop in consumer confidence to a
seven-month low and only a mild rebound in factory activity in
New York state. 
    "(It) reinforced the fact that U.S. data has been soft of
late," said Benjamin Reitzes, senior economist and foreign
exchange strategist at BMO Capital markets. 
    "The hoped-for rebound in the second quarter, after what
looks like is going to be a negative first quarter, may not be
as strong as hoped."
    Reitzes said it was still early in the quarter, however.
    The Canadian dollar finished at C$1.2022 to the
greenback, or 83.18 U.S. cents, softer than the Bank of Canada's
official close of C$1.1999, or 83.34 U.S. cents, on Thursday.
    It was weaker than most other currency counterparts, but was
about 0.4 percent stronger on the week.
    In Canada, manufacturing sales rebounded by 2.9 percent in
March from February, stronger than the 1.2 percent rise
economists had forecast. Foreign investment in Canadian
securities jumped to C$22.47 billion in March, the biggest
inflow since May 2012. 
    Looking ahead, markets will be keen to see what Bank of
Canada governor Stephen Poloz will have to say about how U.S.
growth will impact Canada.
    "I wouldn't be surprised if he sounded meaningfully more
cautious on Tuesday, based on that softer U.S. growth outlook,"
said Reitzes. "They have to be looking at a downgrade to their
U.S. forecast. That's clearly a downside risk to Canadian
    Canadian government bond prices were higher across the
maturity curve, with the two-year price up 5 Canadian
cent to yield 0.646 percent and the benchmark 10-year
 rising 84 Canadian cents to yield 1.714 percent.
    The Canada-U.S. two-year bond spread was 10.6 basis points,
while the 10-year spread was -43.7 basis points.

 (Reporting by Solarina Ho; Editing by Bernadette Baum and
Andrew Hay)