January 25, 2016 / 2:50 PM / 5 years ago

CANADA FX DEBT-C$ dips with lower crude oil prices, trimming last week's rally

* Canadian dollar at C$1.4193 or 70.46 U.S. cents
    * Bond prices higher across the maturity curve

    TORONTO, Jan 25 (Reuters) - The Canadian dollar fell against
its U.S. counterpart on Monday, trimming last week's gains, as
Friday's short-covering rally in crude oil prices was partly
    The currency rallied 3.0 percent last week after the Bank of
Canada surprised many traders by leaving its policy rate on hold
at 0.50 percent.
    However, expectations that the central bank will cut by July
has nudged higher to 86 percent. It was 78 percent after much
stronger than expected retail sales data on Friday.
    U.S. crude oil prices fell more than 3 percent as Iraq
announced record-high oil production. 
    At 9:18 a.m. EST (1418 GMT), the Canadian dollar 
was trading at C$1.4193 to the greenback, or 70.46 U.S. cents,
weaker than Friday's official close of C$1.4150, or 70.67 U.S.
    The currency's strongest level of the session was C$1.4127,
while its weakest level was C$1.4220.
    Bearish bets on the Canadian dollar rose in the week ended
Jan. 19. Net short Canadian dollar positions increased to 66,386
contracts from 59,214 in the prior week, according to data from
the Commodity Futures Trading Commission released on Friday.
    Attention has shifted to the U.S. Federal Reserve interest
rate announcement on Wednesday, as well as the conclusion of the
Bank of Japan policy meeting on Friday. 
    Canadian government bond prices were higher across the
maturity curve, with the two-year price up 3 Canadian
cents to yield 0.441 percent and the benchmark 10-year
 rising 30 Canadian cents to yield 1.285 percent.
    The curve flattened in sympathy with U.S. Treasuries, as the
spread between the 2-year and 10-year yields narrowed by 1.7 
basis points to 84.4 basis points, indicating outperformance for
longer-dated maturities.
    The Canada-U.S. 10-year bond spread was 1.1 basis points
wider at -74.1 basis points, trimming underperformance last week
by Canadian government bonds.
    Canadian GDP for November is awaited on Friday, expected to
reveal a rebound in growth after contraction in October.

 (Reporting by Fergal Smith; Editing by Chizu Nomiyama)
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