CANADA FX DEBT-C$ tumbles as oil drops and domestic data disappoints

Fri Sep 23, 2016 4:53pm EDT
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(Adds analyst quotes, details on the Bank of Canada and CFTC
data; updates prices)
    * Canadian dollar ends at C$1.3171, or 75.92 U.S. cents
    * Bond prices higher across the yield curve

    By Fergal Smith
    TORONTO, Sept 23 (Reuters) - The Canadian dollar tumbled
against its U.S. counterpart on Friday, pressured by raised bets
for a Bank of Canada rate cut as oil prices fell and domestic
data disappointed.
    Canada's annual inflation rate in August dipped to a
10-month low and retail sales unexpectedly fell in July,
disappointing markets and reviving talk that the Bank of Canada
was more inclined to ease monetary policy than tighten.
    The central bank may cut interest rates one more time if the
Federal Reserve does not raise interest rates by year-end and if
an anticipated rebound in Canada's economy does not materialize,
said Hosen Marjaee, senior managing director, Canadian fixed
income at Manulife Asset Management.
    The central bank last cut its policy rate by 25 basis points
in July 2015 to leave it at 0.50 percent.
    The implied probability of a Bank of Canada rate cut by
mid-2017 jumped from less than 20 percent before the data to 40
percent, overnight index swaps data showed. 
    A rate cut would weaken the Canadian dollar and help exports
grow and may also help the domestic economy, Marjaee said.
    U.S. crude oil futures settled $1.84 lower at $44.48
a barrel on signs Saudi Arabia and arch rival Iran were making
little progress in achieving preliminary agreement ahead of
talks by major crude exporters next week aimed at freezing
    Oil is one of Canada's major exports.
    The Canadian dollar ended at C$1.3171 to the
greenback, or 75.92 U.S. cents, much weaker than Thursday's
close of C$1.3062, or 76.56 U.S. cents.
    The currency's strongest level of the session was C$1.3030,
while its weakest was C$1.3181.
    For the week, the loonie rose 0.3 percent.
    Speculators pared bullish bets on the Canadian dollar for
the third straight week, Commodity Futures Trading Commission
data showed. Net long Canadian dollar positions dipped to 16,303
contracts in the week ended Sept. 20 from 17,058 contracts in
the prior week.
    Canadian government bond prices were higher across the yield
curve, with the two-year price up 8.5 Canadian cents
to yield 0.525 percent and the benchmark 10-year 
rising 57 Canadian cents to yield 1.04 percent.
    The 10-year yield fell 4.9 basis points further below its
U.S. counterpart, leaving the spread at -58 basis points, the
largest gap in nearly six months, as Canadian government bonds
outperformed on weaker-than-expected domestic data.
    EU ministers took steps to approve a contentious free trade
deal with Canada. 

 (Reporting by Fergal Smith; Editing by Meredith Mazzilli and
Sandra Maler)