November 25, 2016 / 10:02 PM / 4 years ago

CANADA FX DEBT-C$ dips against weaker greenback as oil drops

(Adds dealer comment, updates prices to close)
    * Canadian dollar ends at C$1.3527, or 73.93 U.S. cents
    * Loonie dips 0.1 percent on the week.
    * Bond prices higher across the yield curve

    By Alastair Sharp
    TORONTO, Nov 25 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Friday as a drop in oil prices
offset a pullback for the greenback against a basket of major
    Oil was dragged lower by uncertainty over whether the
Organization of the Petroleum Exporting Countries will reach an
output deal, after Saudi Arabia said it will not attend talks on
Monday with non-OPEC producers to discuss supply cuts. 
    "The only story around today is that oil's 3 percent weaker
and there was some profit-taking on long U.S. dollar positions,"
said Darcy Browne, managing director of foreign exchange sales
at CIBC Capital Markets. 
    Oil is one of Canada's major exports. 
    The Canadian dollar ended at C$1.3527 to the
greenback, or 73.93 U.S. cents, weaker than Thursday's close of
C$1.3491, or 74.12 U.S. cents. It dipped 0.1 percent on the
    The losses for the loonie came as Canada's 10-year yield
fell 2.7 basis points below its U.S. equivalent to leave a
spread of -79.4 basis points. On Wednesday, the spread hit its
widest in 10 months at -81.9 basis points.
    A wider spread reduces investor incentive to buy
lower-yielding Canadian bonds, trimming demand for Canadian
    Browne said he expects further weakness for the currency,
and is watching the 50 percent retracement of the January peak
to May trough at C$1.3575, which it barely breached on Nov. 14.
    "If we can get a little traction over that level I think we
can push higher again and the Canadian dollar should probably
end up a little weaker into the end of the year," he said.
    U.S. crude oil futures settled $1.90 lower at $46.06
a barrel.
    The U.S. dollar on Friday pared some recent gains.
Still, expectations of rises in U.S. inflation and interest
rates have driven the greenback to a more than 6 percent gain
against a basket of major currencies over October and November.
    The market is underestimating the prospect of further
interest rate cuts from the Bank of Canada, some economists
said, as an uncertain outlook for the NAFTA trade accord
following Donald Trump's U.S. presidential election win risks
derailing an expected pick-up in Canada's business spending.
    Canadian government bond prices were higher across a flatter
yield curve, with the two-year up 2.5 Canadian cents
to yield 0.673 percent and the benchmark 10-year 
rising 24 Canadian cents to yield 1.56 percent.

 (Additional reporting by Fergal Smith; Editing by Meredith
Mazzilli and Lisa Shumaker)
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