May 1, 2017 / 9:08 PM / 3 years ago

CANADA FX DEBT-C$ weakens as oil prices fall, Fed decision looms

 (New throughout, updates prices and market activity, adds
analyst comments, details on upcoming Fed meeting)
    * Canadian dollar at C$1.3674, or 73.13 U.S. cents
    * Bond prices mixed across a steeper yield curve

    By Fergal Smith
    TORONTO, May 1 (Reuters) - The Canadian dollar weakened on
Monday against its U.S. counterpart as oil prices fell and
investors braced for an interest rate decision midweek from the
U.S. Federal Reserve.
    At 4:00 PM ET (2000 GMT), the Canadian dollar          was
trading at C$1.3674 to the greenback, or 73.13 U.S. cents, down
from Friday's official close of at C$1.3650, or 73.26 U.S.
cents. The currency traded in a range of C$1.3639 to C$1.3687.
    "It could be tied to expectations as to what the Fed will
say on Wednesday," said Bipan Rai, Executive Director and Senior
Macro Strategist.
    Investors do not expect the U.S. central bank to raise rates
this week. But interest rate futures are pricing a roughly 70
percent chance that the Fed will hike in June, according to the
CME's FedWatch.
    Higher U.S. interest rates would support the greenback at
the expense of the Canadian dollar, while the loonie has also
been held back recently by lower oil prices, domestic mortgage
market concerns and an uncertain outlook for the North American
Free Trade agreement.
    "There is a political premium priced into the loonie at this
point due to NAFTA," Rai said.
    Last week, the loonie fell 1.1 percent. It touched on Friday
its weakest since February 2016 at C$1.3697.
    U.S. crude oil futures settled 49 cents lower on Monday at
$48.84 a barrel, pressured by worries that Organization of the
Petroleum Exporting Countries-led production cuts may not
significantly tighten an oversupplied market in the short term.
    Oil is one of Canada's major exports.
    Canadian government bond prices were mixed, with the curve
steepening in sympathy with U.S. Treasuries after U.S. Treasury
Secretary Steven Mnuchin said the government is looking into the
issuance of ultra long-term bonds.
    The two-year            price rose 0.5 Canadian cent to
yield 0.72 percent but the 10-year             fell 25 Canadian
cents to yield 1.577 percent.                
    Canada's trade report for March is due on Thursday, and the
April employment report is due on Friday.

 (Reporting by Fergal Smith Editing by W Simon and David
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