CANADA FX DEBT-C$ weakens to 1-week low; pares losses as oil turns higher

Wed Jul 20, 2016 4:49pm EDT
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(Adds analyst quote and details on U.S. dollar, crude inventory
data and 2-year auction, updates prices)
    * Canadian dollar ended at C$1.3055, or 76.60 U.S. cents
    * Loonie touched its weakest since July 12 at C$1.3097
    * Bond prices lower across the maturity curve
    * 2-year yield touches its highest since June 24 at 0.609

    By Fergal Smith
    TORONTO, July 20 (Reuters) - The commodity-linked Canadian
dollar weakened to a one-week low against its U.S. counterpart
on Wednesday, although some losses were pared as oil prices
turned higher.
    U.S. crude oil rebounded from two-month lows after the U.S.
government reported a ninth straight week of crude inventory
draws, easing some concerns in a market worried about a glut.
U.S. crude oil futures settled up 29 cents at $44.94 a
    The U.S. dollar set a four-month high against a basket of
major currencies, helped by recent firm domestic data and a
rebound in Treasury yields from the lows seen in the wake of
Britain's vote to leave the European Union.
    "I don't think we are back to the pre-Brexit highs on U.S.
interest rates, but we've retraced back a lot of that ground ...
I think that's really what's helping drive the U.S. dollar and
giving dollar-Canada its slight uplift today," said Amo Sahota,
director at Klarity FX.     
    The Canadian dollar ended at C$1.3055 to the
greenback, or 76.60 U.S. cents, weaker than Tuesday's close of
C$1.3028, or 76.76 U.S. cents.
     The currency's strongest level of the session was C$1.3014,
while it touched its weakest since July 12 at C$1.3097.
    Uncertainty over Britain's looming exit from the European
Union prompted the IMF to cut its global growth forecasts for
the next two years. 
    Its forecast for Canada was cut by 0.1 percentage point to
1.4 percent for 2016. However, the IMF now expects Canada's
economy will grow 2.1 percent in 2017, 0.2 percentage point more
than its previous projection in April.
    Canadian government bond prices were lower across the
maturity curve in sympathy with U.S. Treasuries as a view
developed that the Federal Reserve could raise interest rates at
least once this year. 
    The two-year price fell 7 Canadian cents to yield
0.607 percent, while the 10-year fell 43 Canadian
cents to yield 1.123 percent.
    The two-year yield touched its highest since June 24 at
0.609 percent as the market digested new supply. Some C$3.9
billion of the 0.500 percent bond due August 2018 was sold at
auction at an average yield of 0.605 percent. 
    Canadian retail sales data for May and inflation data for
June are due on Friday.

 (Reporting by Fergal Smith; Editing by W Simon and Alan Crosby)