CANADA FX DEBT-C$ drops with oil price but Fed minutes cushion the fall

Wed Aug 19, 2015 5:14pm EDT
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(Updates with Fed minutes, analyst's comment, closing figures)
    * Canadian dollar at C$1.3110 or 76.28 U.S. cents
    * Bond prices higher across the maturity curve

    By Solarina Ho
    TORONTO, Aug 19 (Reuters) - The Canadian dollar finished
weaker against the U.S. dollar on Wednesday as crude prices sank
to multiyear lows, but it pared early losses after minutes from
the U.S. Federal Reserve's July policy meeting gave no clear
indication of when the central bank intends to raise interest
    The greenback slid as market participants who had
anticipated a September move by the Fed pulled back those bets.
A U.S. rate hike sometime this year is still widely expected,
however, and would be the first increase in nearly a decade.
    Some have wondered whether concerns about an economic
slowdown in China and the latest slump in commodity prices,
which could lower inflation, will affect the Fed's timing.
    The Canadian dollar ended the session at C$1.3110
to the greenback, or 76.28 U.S. cents, weaker than the Bank of
Canada's official close of C$1.3056, or 76.59 U.S. cents.
    The loonie swung widely between C$1.3024 and C$1.3180 during
the session, weakening sharply as the price of oil, a
significant Canadian export, plunged to 6-1/2 year lows. U.S.
crude settled below C$42 a barrel. 
    "The Canadian dollar was weakening coming into the oil moves
- that pushed us to the weakest we've seen in a couple of weeks.
It reversed really hard on the FOMC (Fed) minutes," said Greg
Anderson, global head of foreign exchange strategy at BMO
Capital Markets in New York.
    "I still think USD/CAD is going higher, but it's clear
there's a lot of selling pressure when you get above C$1.3150."
    Anderson expects the loonie to weaken to C$1.34 eventually,
but stop short of C$1.35. He forecasts that the Fed will raise
rates in September or at least send a clear signal that it will
do so in October.
    Investors expect the loonie to stay within its current
trading range ahead of Friday's release of Canadian inflation
figures for July and retail sales data for June. Disappointing
numbers will likely send the currency through C$1.32, Anderson
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 9 Canadian cents
to yield 0.370 percent and the benchmark 10-year 
popping 75 Canadian cents higher to yield 1.318 percent.
    The Canada-U.S. two-year bond spread narrowed to -29.1 basis
points, while the 10-year spread widened to -81.1 basis points.

 (Reporting by Solarina Ho; Editing by Peter Galloway)