CANADA FX DEBT-C$ stabilizes vs broadly stronger greenback as oil rallies

Mon Aug 8, 2016 4:40pm EDT
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(Adds analyst comments and updates prices)
    * Canadian dollar at C$1.3163, or 75.97 U.S. cents
    * Bond prices slightly higher across the maturity curve

    By Fergal Smith
    TORONTO, Aug 8 (Reuters) - The commodity-linked Canadian
dollar stabilized against its broadly firmer U.S. counterpart on
Monday as pressure on the currency triggered by recent weak
domestic data was offset by higher oil prices.
    The Canadian dollar's more stable performance follows steep
losses on Friday as a slump in domestic jobs and a record-wide
trade deficit contrasted with a robust U.S. jobs report.
    "Disappointing Canadian economic data" has weighed on the
loonie, said Eric Viloria, currency strategist at Wells Fargo.
    The value of Canadian building permits declined 5.5 percent
in June from May, data from Statistics Canada showed on Monday.
    Viloria expects the Canadian dollar to weaken over time,
driven by a widening interest rate differential between the two
economies as the U.S. Federal Reserve resumes rate hikes and the
Bank of Canada stays on hold.
    The implied probability of a Bank of Canada rate cut has
increased to 19 percent, overnight index swaps data showed, from
just 12 percent before Friday's weak domestic jobs and trade
    The Canadian dollar ended at C$1.3163 to the
greenback, or 75.97 U.S. cents, slightly stronger than Friday's
close of C$1.3164, or 75.96 U.S. cents.
    The currency's strongest level of the session was C$1.3135,
while its weakest was C$1.3197.
    On Friday, the Canadian dollar touched a nine-day low at
    Speculators reduced bullish bets on the Canadian dollar for
the first time in six weeks, Commodity Futures Trading
Commission data showed on Friday. Net long Canadian dollar
positions fell to 17,758 contracts in the week ended Aug. 2 from
23,180 contracts in the prior week. 
    Oil futures rose amid renewed speculation that OPEC would
try to restrain member producers' output. U.S. crude 
prices settled $1.22 higher, or 2.9 percent, at $43.02 a barrel.
    The U.S. dollar rose against a basket of major
currencies after Friday's jobs data raised expectations that the
Federal Reserve is closer to raising interest rates.
    Canadian government bond prices were slightly higher across
the maturity curve, with the two-year price up 2
Canadian cents to yield 0.51 percent and the benchmark 10-year
 rising 4 Canadian cents to yield 1.067 percent.
    The yield on Canada's 10-year bond widened 1.1 basis points
further below the yield on its U.S. equivalent, leaving the
spread at -52.1 basis points, its largest gap since June 3, as
Canadian government bonds outperformed.

 (Reporting by Fergal Smith, editing by G Crosse)