CANADA FX DEBT-C$ weakens with oil as investors await Fed Chair Yellen

Fri May 27, 2016 9:56am EDT
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* Canadian dollar at C$1.3056, or 76.59 U.S. cents
    * Bond prices slightly lower across the maturity curve

    TORONTO, May 27 (Reuters) - The Canadian dollar weakened
against its broadly firmer U.S. counterpart on Friday as oil
fell and investors braced for possible clues on the timing of
U.S. interest rate hikes from Federal Reserve Chair Janet
    Oil futures dropped below $49, moving further from a
seven-month high hit a day earlier, with analysts predicting
range-bound markets for the next few months as supply outages
slowly help to clear a glut of crude. 
    The U.S. dollar strengthened against a basket of
major currencies. Gains were only briefly trimmed after U.S.
first-quarter growth was revised up slightly less than expected
to 0.8 percent annualized.    
    Yellen is due to speak at an event hosted by Harvard
University at 1:15 p.m. EDT (1715 GMT). Her speech will come
after a number of Fed policymakers this week struck hawkish
tones on the trajectory of interest rates.
    At 9:38 a.m. EDT (1338 GMT), the Canadian dollar 
traded at C$1.3056 to the greenback, or 76.59 U.S. cents, weaker
than Thursday's close of C$1.2970, or 77.10 U.S. cents.
    The currency's strongest level of the session was C$1.297,
while its weakest was C$1.3068.
    On Thursday, the loonie posted a one-week high at C$1.2912
as oil briefly moved above $50 a barrel and after the Bank of
Canada was less dovish this week than some investors expected,
signaling the impact on the economy of the Alberta wildfires
will be transitory. 
    Canadian dollar-implied volatility, which traders use to
price options on the currency, has tumbled since the interest
rate decision and ahead of a U.S. holiday on Monday. For 3-month
options, implied volatility was at 9.35 percent on Friday, near
its lowest since January. 
    Canadian government bond prices were slightly lower across
the maturity curve in sympathy with U.S. Treasuries. The
two-year price fell 0.5 Canadian cent to yield 0.62
percent and the benchmark 10-year declined 3
Canadian cents to yield 1.334 percent.
    The Canada-U.S. two-year bond spread was 1.3 basis points
more negative at -26.3 basis points as Treasuries
underperformed. On Tuesday, the spread touched its largest gap
in near two months at -28.1 basis points.

 (Reporting by Fergal Smith; Editing by Jeffrey Benkoe)