CANADA FX DEBT-C$ reverses from a 2-week high as oil rally loses momentum
(Adds analyst quotes, details on U.S. oil inventories, Canadian data, updates prices) * Canadian dollar at C$1.3749, or 72.73 U.S. cents * Bond prices higher across the maturity curve By Fergal Smith TORONTO, Feb 18 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Thursday, pulling back from a two-week high earlier in the session as rising U.S. oil inventories tempered a rally in crude oil prices and U.S. stocks reversed to trade lower. The risk-sensitive commodity currency has firmed almost 2 percent since hitting C$1.4018 one week ago, but gains stalled in front of C$1.3640, the near eight-week high touched earlier this month. "The Canadian dollar is a slave to the oil market," said Adam Button, a currency analyst at ForexLive in Montreal. "We're finding out that the world is awash in oil." This week's rally in oil was pared after a U.S. government report showed a rise in crude stocks, countering optimism over a deal by oil producers to freeze output. U.S. crude prices settled at $30.77 a barrel, up 0.36 percent. Nonetheless, expectations for further easing by the Bank of Canada have diminished as crude oil prices have rallied. The implied probability of a rate cut by year-end has dropped to 85 percent, while as recently as Feb. 12, a 25 basis point cut had been fully implied. The Canadian dollar ended at C$1.3749 to the greenback, or 72.73 U.S. cents, weaker than Wednesday's official close of C$1.3705, or 72.97 U.S. cents. The currency touched its strongest since Feb. 4 at C$1.3654, while its weakest level was C$1.3912. Canadian wholesale trade rose 2.0 percent in December from November, more than expected. It follows solid manufacturing data and strength in exports for the same month. However, the market is questioning whether firm December data will extend into January, according to Button. Canadian government bond prices were higher across the maturity curve in sympathy with U.S. Treasuries as the recovery in risk appetite ran out of steam. The two-year price rose 9 Canadian cents to yield 0.435 percent and the benchmark 10-year was up 61 Canadian cents to yield 1.113 percent. The 10-year yield has rebounded almost 200 basis points from last week's record low of 0.921 percent. Top-tier domestic data is awaited on Friday, featuring December retail sales and the January consumer price index. (Reporting by Fergal Smith; Editing by Lisa Von Ahn and Chris Reese)
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