CANADA FX DEBT-C$ tumbles on rising Fed hike risk, oil slide
(Adds strategist comment, details; updates prices) * Canadian dollar at C$1.3157, or 76.01 U.S. cents * Bond prices fall across the maturity curve By Fergal Smith TORONTO, Nov 4 (Reuters) - The Canadian dollar retreated against the U.S. dollar on Wednesday, as hawkish comments from Federal Reserve Chair Janet Yellen and a pullback in crude oil overshadowed a narrowing in Canada's trade deficit. The Canadian dollar ended the day at C$1.3157 to the greenback, or 76.01 U.S. cents, weaker than Tuesday's official close of C$1.3052, or 76.62 U.S. cents. Tuesday's close was the currency's strongest in two weeks. "It's taken its cue from a stronger U.S. dollar and also bearish crude stats that we received this morning," said Bipan Rai, director of foreign exchange strategy at CIBC World Markets. U.S. crude oil settled down 3.3 percent at $46.32 a barrel, unwinding much of Tuesday's sharp rally, on rising U.S. crude inventories and pressure by an internal OPEC document published by Reuters that showed weaker demand in the next few years for oil from the producer group. Brent crude oil fell 3.5 percent at $48.75 a barrel. The Fed's Yellen pointed to a possible December interest rate "liftoff" during congressional testimony and a slow path of increases from then on to nurture an economic recovery. Justin Trudeau, Canada's new prime minister, named a slimmed-down Cabinet, including rookie politician and corporate executive Bill Morneau as finance minister. Trudeau has already laid out the major planks of his economic plan, which includes running three years of budget deficits and boosting infrastructure spending in a bid to stimulate Canada's flagging economy. Rai suggested that expansive fiscal policy in Canada "takes a little bit of pressure off the Bank of Canada to add to easier policy at this point." Canada's trade gap narrowed more than expected, to C$1.73 billion, helped by a modest pick up in exports including consumer goods and energy products. Canadian government bond prices were lower across the maturity curve, with the two-year price falling 5.5 Canadian cents to yield 0.628 percent. The benchmark 10-year fell 18 Canadian cents to yield 1.635 percent. The Canada-U.S. two-year bond spread was 1.7 basis points more negative at -18.8 basis points as Treasuries underperformed at the front of the curve on rising risk of a December rate hike from the Fed, while the 10-year spread was 0.8 of a basis point less negative at -59.6 basis points. (Additional reporting by Alastair Sharp; Editing by W Simon and Chris Reese)
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