CANADA FX DEBT-C$ unwinds gains as oil prices stay fragile, rate cut bets trimmed
(Adds analyst quotes, details on household debt, federal budget timing, updates prices) * Canadian dollar at C$1.4559 or 68.69 U.S. cents * Bond prices mixed across the maturity curve By Fergal Smith TORONTO, Jan 19 (Reuters) - The Canadian dollar unwound earlier gains against its U.S. counterpart on Tuesday as crude oil prices remained fragile, while relative stability in financial markets saw traders trim bets that the Bank of Canada will cut rates on Wednesday. Expectation that China might increase stimulus helped financial markets achieve relative stability following turmoil at the start of 2016, lending support to risk-sensitive commodity currencies such as the Canadian dollar. It may have left the market second guessing whether the Bank of Canada will "pull the rate trigger" on Wednesday, according to Sal Guatieri, senior economist at BMO Capital Markets. The implied probability of a Bank of Canada interest rate cut on Wednesday dipped to 51 percent from 64 percent on Monday. A rate cut has been fully discounted by May. Brent crude rebounded from 12-year lows after data showed record demand in China, but a warning by the world's energy watchdog that the market could "drown in oversupply" limited the global benchmark's gains and sent U.S. crude down to its lowest since 2003. "Until oil prices bottom out, the Canadian dollar will remain on the defensive," Guatieri said. The Canadian dollar ended at C$1.4559 to the greenback, or 68.69 U.S. cents, slightly weaker than Monday's close of C$1.4557, or 68.70 U.S. cents. The currency's strongest level of the session was C$1.4433, while its weakest was C$1.4576. On Monday, it hit its weakest since April 2003 at C$1.4650. Canada's record-high household debt levels will only get worse this year, the country's parliamentary budget watchdog warned. Canada's Liberal government could push back its first federal budget to April to give policymakers a better idea of the impact that low commodity prices are having on the economy, a senior Liberal official said. Canadian government bond prices were mixed across the maturity curve, with the two-year price up 2.5 Canadian cents to yield 0.293 percent and the benchmark 10-year falling 19 Canadian cents to yield 1.180 percent. The 10-year yield hit a record low on Friday at 1.143 percent. The Canada-U.S. two-year bond spread was 3.4 basis points more negative at -57.7 basis points as Canada's two-year bond outperformed, trading near its widest gap since March 2007. Canadian investors bought a record C$16.46 billion worth of foreign securities in November, mostly in U.S. Treasury bonds and stocks, Statistics Canada said. (Reporting by Fergal Smith; Editing by Meredith Mazzilli and James Dalgleish)
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