CANADA FX DEBT-C$ strengthens as oil rallies; Poloz speech has little impact

Tue Apr 26, 2016 9:43am EDT
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* Canadian dollar at C$1.2640, or 79.11 U.S. cents
    * Bond prices mixed across steeper maturity curve

    By Fergal Smith
    TORONTO, April 26 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Tuesday as oil
prices rose and weaker-than-expected U.S. data weighed on the
greenback, while a speech by Canada's central bank governor had
little impact on the market.
    Global trade is likely to grow more slowly than it did in
the past, but this should not be taken as a sign of an impending
recession, Bank of Canada Governor Stephen Poloz said on
    Poloz didn't reveal anything new that would have
implications for the currency, said Mazen Issa, senior FX
strategist at TD Securities.
    There is "a small degree of cautiousness," which is
consistent with recent comments from the governor that have
tried to "talk down" some of the optimism about the economy that
has been generated by domestic data, he said.
    Still, the implied probability of a Bank of Canada rate hike
this year has increased to 24 percent from near zero before
stronger-than-expected retail sales data on Friday, overnight
index swaps (OIS) showed. At the start of March, the OIS market
had implied a more than 50 percent chance of a cut. 
    At 9:19 a.m. EDT (1319 GMT), the Canadian dollar 
was trading at C$1.2640 to the greenback, or 79.11 U.S. cents,
stronger than Monday's close of C$1.2686, or 78.83 U.S. cents.
    The currency's strongest level of the session was C$1.2626,
while its weakest was C$1.2685.
    The loonie has rallied 16 percent since falling to a 12-year
low in January. Last week, it touched its strongest since July 6
at C$1.2593.
    Oil prices rose, boosted by a weaker dollar and by
expectations that demand could grow quickly enough to match
supply this year. U.S. crude prices were up 1.62 percent
to $43.33 a barrel. 
    Orders for long-lasting U.S. manufactured goods rebounded
less than expected in March, suggesting the downturn in the
factory sector was far from over. 
    Canadian government bond prices were mixed across the
maturity curve, with the two-year price up 1.5
Canadian cents to yield 0.692 percent and the new benchmark
10-year falling 13 Canadian cents to yield 1.559
    The curve steepened, as the spread between the 2-year and
10-year yields widened by 2.1 basis points to reach its widest
since Jan. 19 at 86.7 basis points, indicating underperformance
for longer-dated maturities.

 (Reporting by Fergal Smith; Editing by Andrea Ricci)