CANADA FX DEBT-C$ weaker against greenback after Fed minutes, oil fall

Wed Oct 12, 2016 5:00pm EDT
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* Canadian dollar settles at C$1.3259, or 75.42 U.S. cents
    * Bond prices mixed across the maturity curve

    By Alastair Sharp
    TORONTO, Oct 12 (Reuters) - The Canadian dollar notched a
small loss against a broadly higher U.S. dollar on Wednesday, as
the release of minutes from the last U.S. Federal Reserve
meeting left a December interest rate hike in play and crude oil
prices fell.
    The Canadian currency is trading near its weakest level in
more than six months as investors focus on monetary policy
divergence between Canada and the United States, its main
trading partner, which is also widening the spread between the
two countries' bond yields.
    "The two-year spread is pretty extended right now, it's at
the wider end of its multi-month range just above 25 basis
points and that's really been the core piece driving the
Canadian dollar weaker over the last little while," said Eric
Theoret, currency strategist at Scotiabank. 
    The Canadian dollar settled at C$1.3259 to the
greenback, or 75.42 U.S. cents, weaker than Tuesday's close of
C$1.3241, or 75.52 U.S. cents.
    The minutes released on Wednesday showed that several voting
Fed policymakers judged a rate hike would be warranted
"relatively soon" if the U.S. economy continued to strengthen
but doubts on inflation remained. 
    Theoret said the currency could move into the C$1.33-C$1.35
range as a December Fed hike - currently seen by investors as a
roughly 70 percent probability - gets more fully priced in.
    "It's really dominating as a driver, given we've had a
pretty tremendous rally in oil and the Canadian dollar hasn't
really blinked at all," he said.
    Oil prices settled 1 percent lower on Wednesday after OPEC
reported its September oil output hit eight-year highs,
offsetting optimism over the group's pledge to bring a global
crude glut under control. 
    Oil is one of Canada's major exports.
    Canadian government bond prices were little changed across
the yield curve. 
    The two-year was half a cent higher on the day to
yield 0.601 percent and the benchmark 10-year added
4 Canadian cents to yield 1.194 percent, after earlier hitting
its highest in four weeks at 1.267 percent. Prices for the
7-year issue fell.

 (Additional reporting by Fergal Smith; Editing by Nick
Zieminski and Tom Brown)