CANADA FX DEBT-C$ strengthens as oil rises, Wall Street pares losses

Thu Oct 13, 2016 4:23pm EDT
 
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(New throughout, updates prices and market activity, adds
analyst quotes and details on finance minister's comments)
    * Canadian dollar ends at C$1.3205, or 75.73 U.S. cents
    * Loonie touches its weakest since Friday at C$1.3307
    * Bond prices higher across the yield curve

    By Fergal Smith
    TORONTO, Oct 13 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Thursday as oil prices rose and
Wall Street pared some losses, spurred by weak Chinese trade
data.
    A sharp decline in China's exports revived concerns about
the health of the world's second-biggest economy. 
    Commodity currencies such as the Canadian dollar were sold
on the weak Chinese data. But investors who got short the
currency were forced to cover their positions as oil and U.S.
stocks rebounded from session lows, said Patric Booth, head of
trading at Velocity Trade.
    The U.S. dollar tumbled from a seven-month high as
Chinese concerns spooked a market that is expecting an interest
rate increase from the Federal Reserve by the end of the year.
 
    U.S. crude oil futures settled up 26 cents at $50.44
a barrel after a U.S. government report showing hefty draws in
diesel and gasoline offset the first crude inventory build in
six weeks. 
    Oil is one of Canada's major exports.
    Still, the Canadian dollar's normally tight link with the
price of oil, which broke down in September, likely will not
reassert itself until after the U.S. election and a potential
interest rate hike by the Federal Reserve, currency strategists
said. 
    "The fact that crude has gone up above $50 and the Canadian
dollar hasn't really benefited one bit since the OPEC
announcement ... to me leaves Canada (dollar) vulnerable if oil
sells off," Booth said. 
    The Canadian dollar closed at C$1.3205 to the
greenback, or 75.73 U.S. cents, stronger than Wednesday's close
of C$1.3259, or 75.42 U.S. cents. Its close was just above the  
  200-day moving average at C$1.3196, according to Reuters data.
    The currency's strongest level of the session was C$1.3185,
while it touched its weakest since Friday at C$1.3307, just shy
of the more-than six-month low set on Friday at C$1.3315.
    Canada's government will watch the country's housing market
but has no imminent plans for further cooling measures, Finance
Minister Bill Morneau said on Thursday, as fresh data showed
prices were still on the rise. 
    Canadian government bond prices were higher across the yield
curve in sympathy with U.S. Treasuries. The two-year 
firmed 0.7 of a Canadian cent to yield 0.599 percent and the
benchmark 10-year climbed 13 Canadian cents to yield
1.182 percent.
    The 10-year spread versus Treasuries narrowed 1.7 basis
points to -56.4 basis points as Treasuries outperformed on the
pick-up in risk aversion.

 (Reporting by Fergal Smith; Editing by Nick Zieminski and David
Gregorio)