March 9, 2016 / 10:04 PM / 4 years ago

CANADA FX DEBT-C$ rises to nearly 4-month high on oil rally, BofC decision

(Adds analyst quotes, details on federal budget, updates
    * Canadian dollar ended at C$1.3250, or 75.47 U.S. cents
    * Currency touches its strongest since Nov. 12 at C$1.3230
    * Bond prices lower across the maturity curve

    By Fergal Smith
    TORONTO, March 9 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Wednesday, marking
a nearly four-month high as oil prices rallied and the Bank of
Canada refrained from action to erode the currency's recent
sharp gains.
    The central bank held its policy interest rate steady at
0.50 percent, citing lower market volatility and stronger
non-energy exports as it waits to assess the impact of
government stimulus due to be unveiled in the March 22 budget.
    "What the markets were anticipating was some push-back
against Canadian dollar strength," said Bipan Rai, executive
director, macro strategy at CIBC Capital Markets.
    Lack of push-back indicates the Bank of Canada is
comfortable with the currency at present levels, he added.
    It has rebounded 11 percent since hitting a 12-year low on
Jan. 20 at C$1.4689.
    Too sharp a rally could hinder a pick-up in exports that
appears to be underway.  
    The implied probability of a rate cut this year dropped to
less than 29 percent from 43 percent before the decision,
according to the overnight interest rate futures market
. It was 80 percent a little over two weeks ago.      
    U.S. crude prices settled at $38.29 a barrel, up 4.90
percent after a huge draw in U.S. gasoline inventories last week
convinced the market that energy demand was improving. 
    The Canadian dollar ended at C$1.3250 to the
greenback, or 75.47 U.S. cents, much stronger than Tuesday's
close of C$1.3416, or 74.54 U.S.
    The currency's weakest level was C$1.3447, while it touched
its strongest since Nov. 12 at C$1.3230.
    The new Liberal government is expected to run a big deficit
and invest in infrastructure projects. Adding private-sector
investment to projects could spur even greater spending.
    There should be a slight upgrade to the Bank of Canada's
economic projection in April if it incorporates what is expected
from fiscal stimulus, said Mark Chandler, head of Canadian fixed
income and currency strategy at RBC Capital Markets.
    Canadian government bond prices were lower across a steeper
maturity curve. The two-year price fell 7.5 Canadian
cents to yield 0.532 percent and the benchmark 10-year
 was down 61 Canadian cents to yield 1.248 percent.
    The Canada-U.S. two-year bond spread was 1.8 basis points
higher at -36.6 basis points, while the 10-year spread was 2.4
basis points higher at -62.8 basis points as Canadian government
bonds underperformed.

 (Reporting by Fergal Smith; Editing by James Dalgleish)
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below