CANADA FX DEBT-C$ weakens with lower oil prices, more volatility eyed
(New throughout, updates prices and market activity, adds trader comment) * Canadian dollar ends at C$1.4270, or 70.08 U.S. cents * Bond prices higher across the maturity curve By Alastair Sharp TORONTO, Jan 25 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Monday, retreating from last week's rally as oil prices renewed their selloff and market watchers expected wide swings in the currency to continue. Crude, a major Canadian export, fell as much as 5 percent Iraq announced record-high oil production that will feed into an already oversupplied market. Oil's loss wiped out much of the gain on Friday from one of the biggest-ever daily rallies. The Canadian dollar ended the session changing hands at C$1.4270 to the greenback, or 70.08 U.S. cents, weaker than Friday's official close of C$1.4150, or 70.67 U.S. cents. The currency rallied 3 percent last week after the Bank of Canada surprised many traders by leaving its policy rate on hold. David Bradley, director of foreign exchange trading at Scotiabank, said the Canadian currency could range between C$1.4050 and C$1.4550 as volatility continues. "I don't know if we're necessarily ready to be searching for a range," Bradley said. "Obviously we've had a large move up from Jan. 1 until the Bank of Canada decided not to cut rates and the move down to below C$1.41 was even more rapid than the move up." The currency's strongest level of the session was C$1.4127, while its weakest level was C$1.4272. Bearish bets on the Canadian dollar rose in the week ended Jan. 19. Net short Canadian dollar positions increased to 66,386 contracts from 59,214 in the prior week, according to data from the Commodity Futures Trading Commission released on Friday. Attention has shifted to the U.S. Federal Reserve interest rate announcement on Wednesday, as well as the conclusion of the Bank of Japan policy meeting on Friday. Canadian government bond prices were higher across the maturity curve, with the two-year price up 8 Canadian cents to yield 0.416 percent and the benchmark 10-year rising 61 Canadian cents to yield 1.251 percent. The curve flattened in sympathy with U.S. Treasuries, as the spread between the 2-year and 10-year yields narrowed by 2.6 basis points to 83.5 basis points, indicating outperformance for longer-dated maturities. The Canada-U.S. 10-year bond spread was 2.7 basis points more negative at -75.7 basis points, trimming underperformance last week by Canadian government bonds. Canadian GDP for November is awaited on Friday, expected to reveal a rebound in growth after contraction in October. (Additional reporting by Fergal Smith; Editing by Chizu Nomiyama and David Gregorio)
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