CANADA FX DEBT-C$ weakens as oil prices retreat

Thu Apr 14, 2016 5:48pm EDT
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(Adds analyst quotes, updates prices)
    * Canadian dollar at C$1.2849, or 77.83 U.S. cents
    * Bond prices lower across the maturity curve

    By Fergal Smith
    TORONTO, April 14 (Reuters) - The Canadian dollar weakened
slightly against its U.S. counterpart on Thursday as oil prices
fell, although some losses were pared after tamer-than-expected
U.S. inflation data.
    Oil markets closed lower on a mixed report from the
International Energy Agency and skepticism that an upcoming
meeting of major producers would do much to tighten the supply
demand balance.
    "The correlation between the Canadian dollar and oil is
currently pretty high," said Hendrix Vachon, senior economist at
    U.S. crude prices settled at $41.50 a barrel, down
0.62 percent.
    U.S. consumer prices rose less than expected in March and
underlying inflation slowed, suggesting the Federal Reserve will
remain cautious about raising interest rates this year.
    However, the prospects of U.S. interest rate hikes were
already low, said Vachon, so the data was "not a game changer."
    The loonie hit a nearly nine-month high at C$1.2744 on
Wednesday but closed lower on the day after the Bank of Canada
counseled caution on the outlook for economic growth.
    The central bank warned that the country's improving economy
faced downside risks, including a stronger currency that could
drag on non-commodity exports, although it held interest rates
steady and raised growth forecasts. 
    Still, the implied probability of a Bank of Canada rate cut
this year has been reduced to near zero from more than 50
percent at the start of March. 
    The Canadian dollar ended at C$1.2849 to the
greenback, or 77.83 U.S. cents, weaker than Wednesday's close of
C$1.2815, or 78.03 U.S. cents.
    The currency's strongest level of the session was C$1.2782,
while its weakest was C$1.2897.  
    The loonie has rebounded more than 14 percent since hitting
a 12-year low of C$1.4689 in January.
    New home prices in Canada rose by 0.2 percent in February
from January, pushed up by continuing strength in the major
regions of Toronto and Vancouver, Statistics Canada said.
    Canadian government bond prices were lower across the
maturity curve, with the two-year price down 4.5
Canadian cents to yield 0.596 percent and the benchmark 10-year
 falling 42 Canadian cents to yield 1.296 percent.   
    The spread between the 2-year and 10-year yields widened by
2.4 basis points to 70.0 basis points, indicating
underperformance for longer-dated maturities.

 (Reporting by Fergal Smith; Editing by Andrew Hay)