CANADA FX DEBT-Loonie slips with oil price; Yellen, Bank of Canada in view
* Canadian dollar at C$1.0727 or 93.22 U.S. cents * Bond prices mixed across maturity curve By Leah Schnurr TORONTO, July 15 (Reuters) - The Canadian dollar weakened against the greenback on Tuesday, dropping along with oil prices in cautious trading ahead of a policy statement by the Bank of Canada later in the week. Markets were also awaiting congressional testimony on Tuesday and Wednesday by U.S. Federal Reserve Chair Janet Yellen. Any comments by Yellen that shed light on the path of monetary policy will have an impact on the U.S. dollar and therefore affect the loonie. The Bank of Canada statement on Wednesday will be the biggest event of the week for Canada. While the central bank is widely expected to hold rates at 1 percent, investors will be watching to see if it reacts to recent stronger-than-expected inflation. Between Yellen on Tuesday and the Bank of Canada on Wednesday, "they offer a nice tennis match where the currency can certainly go between two extremes," said David Tulk, chief Canada macro strategist at TD Securities in Toronto. Comments from Yellen that are expected to be dovish would lead to U.S. dollar weakness, which should give the Canadian dollar a tailwind, Tulk said. "That will be quickly offset by the Bank of Canada coming out tomorrow where we think that they will look through some of the recent acceleration in inflation to instead focus on some of the downside risks to growth outlook," he said. The Canadian dollar was at C$1.0727 to the greenback, or 93.22 U.S. cents, weaker than Monday's close of C$1.0715, or 93.33 U.S. cents. Crude was down nearly a dollar at $99.98 a barrel on weak demand and rising Libyan supplies, which overshadowed violence in that country. The loonie gained 1.6 percent through June in a rally fueled by the stronger-than-expected inflation data, higher oil prices and short-covering. But the currency's momentum stalled last week as it was hit hard by a report that showed the economy lost jobs in June. An accommodative tone from Yellen could push the loonie up to C$1.0705, but if the Bank of Canada strikes a cautious tone, as expected, that could send the currency back to the C$1.0750 area, Tulk said. Canadian government bond prices were mixed across the maturity curve, with the two-year up 1 Canadian cent to yield 1.094 percent, while the benchmark 10-year was unchanged to yield 2.216 percent. (Editing by Peter Galloway)
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