CANADA FX DEBT-C$ strengthens to a 1-week high as oil rallies

Thu May 12, 2016 5:27pm EDT
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(Adds analyst comment, details on Fed officials and Canada job
vacancies, updates prices)
    * Canadian dollar at C$1.2834, or 77.92 U.S. cents
    * Bond prices lower across the maturity curve

    By Fergal Smith
    TORONTO, May 12 (Reuters) - The Canadian dollar strengthened
to a one-week high against its U.S. counterpart on Thursday,
although some gains were pared as oil pulled back from its
highest levels, while Federal Reserve officials were less
cautious on U.S. interest rate hikes.
    Oil rose to six-month highs as investors weighed a forecast
for tighter global supplies against signs of another storage
build at the hub for U.S. crude futures. U.S. crude oil futures
 settled at $46.70 a barrel, up 47 cents. 
    The U.S. dollar rose against a basket of currencies
as Fed officials voiced willingness to continue on a rate-hiking
    The Canadian dollar is likely to be range-bound until the
trajectory for Fed policy becomes clearer and until oil
producers meet at the beginning of June, said Darren Richardson,
senior corporate dealer at CanadianForex.
    Some oil sands operations have restarted operations this
week after having been shuttered by a huge wildfire. The loss of
production has weighed on Canada's economic outlook. Economists
say second-quarter growth may slow to a standstill, leaving the
central bank on hold.  
    Overnight index swaps imply a 27-percent chance of a Bank of
Canada rate cut this year, dipping from nearly 40 percent at the
start of the week as oil rallied and some oil sands operations
restarted. Still the market has swung from a 20 percent chance
of a hike seen at the beginning of the month. 
    The Canadian dollar ended at C$1.2834 to the
greenback, or 77.92 U.S. cents, stronger than Wednesday's close
of C$1.2851, or 77.81 U.S. cents.
    The currency's weakest level was C$1.2879, while it touched
its strongest since May 4 of C$1.2772.
    Canadian new home prices rose 0.2 percent in March, topping
analysts' expectations of 0.1 percent, while the number of job
vacancies in Canada fell in the fourth quarter of last year.
    Canadian government bond prices were lower across the
maturity curve in sympathy with U.S. Treasuries. The two-year
 price fell 5 Canadian cents to yield 0.566 percent
and the benchmark 10-year declined 14 Canadian cents
to yield 1.319 percent.
    The 10-year yield touched on Wednesday its lowest since
April 18 of 1.274 percent.

 (Reporting by Fergal Smith; Editing by Nick Zieminski and James