CANADA FX DEBT-C$ strengthens as oil climbs to near 3-month high

Mon Oct 3, 2016 4:38pm EDT
 
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(Adds analyst comments and details on housing sector measures,
updates prices)
    * Canadian dollar ends at C$1.3110, or 76.28 U.S. cents
    * Bond prices lower across the yield curve

    By Fergal Smith
    TORONTO, Oct 3 (Reuters) - The Canadian dollar strengthened
slightly against a firmer U.S. counterpart on Monday as oil rose
to its highest intraday level in nearly three months.
    U.S. crude prices settled up 57 cents at $48.81 a
barrel as Iran exhorted the need for other oil producers to join
the Organization of Petroleum Exporting Countries in supporting
the market. 
    Modest gains for the loonie followed data on Friday that
showed Canada's economy got off to a stronger-than-expected
start in the third quarter. 
    The data has reduced pressure on the Bank of Canada to cut
interest rates in the near term, said Mazen Issa, senior foreign
exchange strategist at TD Securities.
    The central bank would prefer that the U.S. Federal Reserve
do the "heavy lifting" by raising interest rates before the end
of the year, Issa added.    
    The U.S. dollar rose against a basket of major
currencies as U.S. factories ramped up activity in September.
       
    The Canadian dollar ended at C$1.3110 to the
greenback, or 76.28 U.S. cents, slightly stronger than Friday's
close of C$1.3117, or 76.24 U.S. cents.
    The currency's strongest level of the session was C$1.3068,
while its weakest was C$1.3144.    
    Canada will close a tax loophole and introduce a stress test
for insured mortgage lending to boost the stability of the
housing sector, the government said, its latest move to cool a
market that some have called a bubble. 
    Still, measures to mitigate risks to the financial system
from the housing market are unlikely to steer the Bank of Canada
toward an interest rate cut, Issa said.
    Speculators have turned bearish on the Canadian dollar,
Commodity Futures Trading Commission data showed on Friday. Net
short Canadian dollar positions stood at 11,615 contracts in the
week ended Sept. 27, having swung from net long 16,303 contracts
in the prior week. 
    Canadian government bond prices were lower across the yield
curve in sympathy with U.S. Treasuries. The two-year 
fell 2.5 Canadian cents to yield 0.536 percent and the benchmark
10-year declined 12 Canadian cents to yield 1.010
percent.
    The 2-year yield fell 1.8 basis points further below its
U.S. equivalent to leave the spread at -26.2 basis points, the 
largest gap since June 8.
    Canada's international merchandise trade report for August
is due on Wednesday. Investors will be looking to see if exports
were as strong as in the previous month. The September
employment report is due on Friday. 

 (Editing by Lisa Von Ahn and Steve Orlofsky)