CANADA FX DEBT-C$ weaker as rate outlook diverges

Tue Oct 4, 2016 5:27pm EDT
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(Adds broker comment, updates prices to close)
    * Canadian dollar settles at C$1.3194, or 75.79 U.S. cents
    * Bond prices lower across the maturity curve

    By Alastair Sharp
    TORONTO, Oct 4 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Tuesday as the greenback made
broad-based gains, with domestic equities underperforming and
investors eyeing a Federal Reserve interest rate hike by the end
of the year.
    While tighter Canadian housing rules announced on Monday
could lower barriers to a near-term Bank of Canada rate cut,
most economists expect domestic rates to be stuck on hold. 
    "I think the Bank of Canada would rather see a C$1.35
dollar/Canada than have to cut," said Darcy Browne, managing
director of foreign exchange sales at CIBC Capital Markets.
    The Canadian dollar ended the day trading at
C$1.3194 to the greenback, or 75.79 U.S. cents, weaker than
Monday's close of $1.3110, or 76.28 U.S. cents.
    Canada's main stock index fell 1.1 percent, compared to
losses of between 0.2 percent and 0.5 percent for Wall Street.
    The spread between Canadian and U.S. 10-year yields widened
by 1.4 basis points to 62.2 basis points, its widest since
    Browne said that a weaker-than-expected jobs report on
Friday could definitively push the loonie past its 200-day
moving average of C$1.3221.
    The currency's strongest level of the session was C$1.3114,
while its weakest was C$1.3215.
    The currency of Canada, a major oil exporter, has failed to
get much of a lift from a recent gain in crude prices to a
four-month high as OPEC plans output cuts.
    "In the short term right now, rates are a bigger driver,
unless we have a big move over $50 (a barrel)," Browne said.
    Crude prices settled slightly lower, with U.S. crude 
down 12 cents at $48.69 a barrel and Brent off 2 cents at
    The U.S. dollar rose against a basket of major
currencies as investors raised bets on a U.S. interest rate hike
by the end of the year. 
    Canadian auto sales were down 0.5 percent in September from
the prior month, with a sharp fall in passenger car sales offset
by higher light truck sales, industry analyst Dennis DesRosiers
wrote on Monday. 
    Canadian government bond prices were lower across the yield
curve, with the two-year down 2.5 Canadian cents to
yield 0.552 percent and the benchmark 10-year 
falling 48 Canadian cents to yield 1.067 percent.
    Canada's international merchandise trade report for August
is due on Wednesday, and investors will be looking to see if
exports were as strong as in the previous month. The September
employment report is due on Friday. 

 (Additional reporting by Fergal Smith; Editing by Chris Reese
and James Dalgleish)