February 1, 2016 / 9:35 PM / 4 years ago

CANADA FX DEBT-C$ rises to nearly 4-week high, shows resilience as oil prices tumble

* Canadian dollar ends at C$1.3930 or 71.79 U.S. cents
    * Currency touches its strongest since Jan. 5 at C$1.3908
    * Bond prices slip across the maturity curve

    By Fergal Smith
    TORONTO, Feb 1 (Reuters) - The Canadian dollar rose to a
nearly four-week high against a weaker U.S. counterpart on
Monday, as resilience seen at the end of January carried over to
the new month even as crude oil prices plunged.
    The currency has rallied more than 5 percent since
hitting on Jan. 20 its weakest since 2003 at C$1.4689, helped by
expectations that the Bank of Canada will not cut interest rates
in the near term. 
    In a reversal of fortune, the U.S. dollar fell against a
basket of major currencies on the view that the Federal
Reserve would not be able to hike rates as quickly as forecast
this year. 
    U.S. crude oil prices dropped more than 6 percent,
pressured by weak economic data from China, a U.S. forecast for
mild weather and growing doubts that OPEC and non-OPEC producers
would come together to reduce a swelling global supply glut.
    "Any drop below $30 (a barrel) again and I think we'll see
that scary volatility come back into play," said Ken Wills,
currency strategist and broker at CanadianForex, in a suggestion
that the Canadian dollar may not yet be out of the woods.
    "I don't think the oil oversupply story has been solved or
is going away anytime soon," he added.    
    The Canadian dollar ended at C$1.3930 to the
greenback, or 71.79 U.S. cents, stronger than Friday's official
close of C$1.4006, or 71.40 U.S. cents.
    The currency touched its strongest since Jan. 5 at C$1.3908,
while its weakest was C$1.4062.
    The Canadian manufacturing sector contracted for the sixth
month in a row in January, although at a slower pace than
    The RBC Canadian Manufacturing Purchasing Managers' Index, a
measure of manufacturing business conditions, edged up to a
seasonally adjusted 49.3 last month from 47.5 in December.      
    Bearish bets on the Canadian dollar rose last week to the
highest in five months, Commodity Futures Trading Commision data
showed on Friday, as steady Bank of Canada policy and an oil
price recovery failed to shake speculation against the currency.
    Canadian government bond prices were lower across the
maturity curve, with the two-year price down 0.5
Canadian cent to yield 0.421 percent and the benchmark 10-year
 falling 7 Canadian cents to yield 1.231 percent.
    The Canada-U.S. two-year bond spread was 2.6 basis points
more negative at -38 basis points as recent underperformance by
Canadian government bonds was pared.

 (Reporting by Fergal Smith; Editing by Meredith Mazzilli and
James Dalgleish)
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