CANADA FX DEBT-C$ strengthens to a 5-month high on dovish Fed
(Adds analyst quote, details on Bank of Canada official's speech, finance minister's comments, updates prices) * Canadian dollar at C$1.2965, or 77.13 U.S. cents * Loonie touched its strongest since Oct. 19 at C$1.2913 * Bond prices lower across the maturity curve By Fergal Smith TORONTO, March 30 (Reuters) - The Canadian dollar strengthened to a five-month high against its U.S. counterpart on Wednesday as investors rowed back expectations for interest rate hikes by the Federal Reserve. The currency has rallied 13 percent since hitting a 12-year low in January at C$1.4689, helped by recovery in crude oil prices, stabilization in financial markets and reduced expectations for Bank of Canada rate cuts. "Recent strength is a result of participants reassessing the outlook for (U.S.) central bank policy," said Lennon Sweeting, North American FX dealer at OFX. The U.S. dollar weakened against a basket of major currencies after Federal Reserve Chair Janet Yellen said on Tuesday the U.S. central bank should proceed "cautiously" with rate hikes. Canada will take more than two years to fully adjust to the drop in oil prices, Bank of Canada Deputy Governor Lynn Patterson said, signaling no quick end to a shock that has roiled the economy. But the implied probability of a Bank of Canada rate cut this year has dropped to 30 percent from more than 50 percent at the start of the month. Oil prices erased most of the day's gains after U.S. government data showed crude inventories at all-time peaks again despite strong refinery runs. U.S. crude prices were up 0.05 percent to $38.3 a barrel. The Canadian dollar ended at C$1.2965 to the greenback, or 77.13 U.S. cents, stronger than Tuesday's close of C$1.3065, or 76.54 U.S. cents. The currency's weakest level of the session was C$1.3079, while it touched its strongest since Oct. 19 at C$1.2913. Canadian Finance Minister Bill Morneau said it may take more time for the country's economy to reap the benefits from a weaker Canadian dollar as domestic manufacturers adjust to its impact. Canadian government bond prices were lower across the maturity curve, with the two-year price down 4 Canadian cents to yield 0.533 percent and the benchmark 10-year falling 46 Canadian cents to yield 1.229 percent. On Tuesday, the 10-year yield hit a three-week low at 1.177 percent. The Canada-U.S. two-year bond spread was 5.5 basis points narrower at -22.8 basis points, while the 10-year spread was 3.5 basis points less negative at -59.8 basis points as Canadian government bonds underperformed. January gross domestic product data is awaited on Thursday. Analysts expect 0.3 percent growth for the month, which would reinforce expectations that first-quarter growth will exceed the Bank of Canada's forecast of 1 percent. (Reporting by Fergal Smith; editing by Nick Zieminski, G Crosse)
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