March 10, 2020 / 7:16 PM / 4 months ago

CANADA FX DEBT-Loonie slides to 4-yr low as market scrambles for U.S. dollars

 (Adds strategist quotes and details throughout; updates prices)
    * Canadian dollar weakens 0.4% against the greenback
    * Price of U.S. oil climbs more than 10%
    * Loonie hits its weakest level since Feb. 24, 2016 at
    * Canadian bond yields rise across the yield curve

    By Fergal Smith
    TORONTO, March 10 (Reuters) - The Canadian dollar fell to a
four-year low against its U.S. counterpart on Tuesday as the
greenback broadly rebounded, while a rally in oil was not enough
to convince investors to turn more bullish on Canada's
commodity-linked currency.
    At 2:44 p.m. (1844 GMT), the Canadian dollar          was
trading 0.4% lower at 1.3748 to the greenback, or 72.74 U.S.
cents. The currency hit its weakest intraday level since Feb.
24, 2016 at 1.3796.
    "Today has been all about the (U.S.) dollar," said Bipan
Rai, North America head of FX Strategy at CIBC Capital Markets.
    "The move is due to dollar shortage outside of the U.S. As
supply chains get disrupted, there is a shortage of dollars,"
Rai said.
    The gap between Libor and overnight index swaps, a measure
of bank funding pressures, was at near 40 basis points for a
3-month term, up from 15 basis points in February.
    The greenback rallied 1.6% against a basket of major
currencies, recovering from a 17-month low on Monday, while oil
prices jumped a day after the biggest rout in nearly 30 years as
investors eyed the possibility of economic stimulus.
    U.S. crude oil futures        were up more than 10% at
$34.47 a barrel but that did not impress currency traders after
a 25% plunge the day before.
    If Saudi Arabia and Russia do not reach a production
agreement then the Canadian dollar could be heading toward 1.40,
Rai said.
    Money market see it as likely the Bank of Canada will cut
interest rates by 50 basis points next month, which would match
the size of last week's move, its biggest easing in more than a
    Canadian banks have increased oil and gas lending at about
double the rate of total business loan growth over the past
three quarters, raising the prospect of higher loan losses after
Monday's oil price crash.             
    Canadian government bond yields rose but by much less than
the increase in U.S. Treasury yields. The 10-year yield was up
2.4 basis points at 0.558%, while the gap between it and its
U.S. equivalent moved by 18.5 basis points to a spread of about
15 basis points in favor of the U.S. bond.

 (Reporting by Fergal Smith; Editing by David Gregorio and
Marguerita Choy)
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