CANADA FX DEBT-C$ firms to near 9-month high as oil rallies

Tue Apr 12, 2016 2:29pm EDT
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(Adds dealer quotes, details on growth forecasts; updates
    * Canadian dollar at C$1.2765, or 78.34 U.S. cents
    * Bond prices lower across steeper maturity curve

    By Fergal Smith
    TORONTO, April 12 (Reuters) - The Canadian dollar
strengthened to a near nine-month high against its U.S.
counterpart on Tuesday, as rising oil prices improved the
economic outlook a day before the Bank of Canada's interest rate
    The currency has rebounded 15 percent since January when it
hit a 12-year low at C$1.4689, supported by a partial recovery
in oil prices, the Canadian government's plan for fiscal
stimulus and sharply reduced expectations for Bank of Canada
rate cuts.
    A run of better-than-expected economic data at the start of
the year has also been supportive of the loonie, including
employment data on Friday. 
    "Right now everything is working in the Canadian dollar's
favor," said Blake Jespersen, managing director, foreign
exchange sales at BMO Capital Markets.
    The currency penetrated key technical support levels,
including C$1.2832, its highest since the Bank of Canada last
cut interest rates in July.
    "We had a lot of interest from importers to hedge at those
levels ... the market actually took out a lot of resting orders
that we had," said Jespersen. "I suspect this still has some
room to run."
    U.S. crude prices were up 3.72 percent to $41.86 a
barrel, extending earlier gains after a report that some top
oil-producing countries have agreed to freeze output ahead of a
much-anticipated OPEC meeting on Sunday. 
    At 2:05 p.m. EDT (1805 GMT), the Canadian dollar 
was trading at C$1.2765 to the greenback, or 78.34 U.S. cents,
much stronger than Monday's close of C$1.2899, or 77.53 U.S.
    The currency's weakest level of the session was C$1.2921,
while it touched its strongest since July 15 last year at
    The implied probability of a Bank of Canada interest rate
cut this year has dropped to less than 10 percent from more than
50 percent at the start of March. 
    However, Bank of Canada Governor Stephen Poloz is expected
to talk up economic risks and play down signs of stronger growth
when the central bank sets interest rates on Wednesday.
    More than half of the analysts in a Reuters poll trimmed
their forecasts for Canada's economic growth in 2016.
    Canadian government bond prices were lower across a steeper
maturity curve in sympathy with U.S. Treasuries as Wall Street
    The two-year price fell 5.5 Canadian cents to
yield 0.585 percent, while the benchmark 10-year was
down 52 Canadian cents to yield 1.297 percent. It touched its
highest since March 28 at 1.298 percent.

 (Reporting by Fergal Smith, editing by G Crosse)