March 8, 2017 / 10:29 PM / 3 years ago

CANADA FX DEBT-C$ hits lowest this year as oil slumps, Fed weighs

 (Adds strategist comment, updates prices to close)
    * Canadian dollar settles at C$1.3494, or 74.11 U.S. cents
    * Loonie touches its weakest since Dec. 30 at C$1.3500
    * Inflection point seen at C$1.36
    * Bond prices lower across a steeper yield curve

    By Alastair Sharp
    TORONTO, March 8 (Reuters) - The Canadian dollar fell to its
lowest level in two months against the greenback on Wednesday as
oil prices collapsed, and as the U.S. dollar surged with strong
jobs data that heightened expectations of a U.S. interest rate
hike next week.
    And the loonie, as Canada's currency is colloquially known,
could weaken further in coming days, according to Mazen Issa, a
senior foreign exchange strategist at TD Securities in New York,
as investors reassess recent bullish positions that had ignored
widening rate differentials between the bond yields of the two
countries as the U.S. Federal Reserve winds up to hike and the
Bank of Canada doubles down on a studiously neutral stance.
    "We're nearing a very significant inflection point, and I
think that there's a risk that we actually test that by this
Friday and into the Fed," Issa said.
    The Canadian dollar          settled at C$1.3494 to the
greenback, or 74.11 U.S. cents, much weaker than Tuesday's close
of C$1.3416, or 74.55 U.S. cents. It has jumped 4 Canadian cents
since late February.
    The currency's strongest level of the session was C$1.3398,
while it touched its weakest since Dec. 30 at C$1.3500.
    That inflection point Issa referenced sits at C$1.3600, a
level approached but not broken twice since November. Breaching
it would push the currency to its weakest against the greenback
in more than a year.
    "The collapse in oil today helps to reinforce those
recalibration risks," Issa added.
    Oil prices plunged 5 percent as U.S. crude inventories
surged much more than expected, stoking concerns a global glut
could persist despite OPEC's output curbs.      
    Stronger-than-expected U.S. non-farm payroll numbers, due on
Friday, could help cement expectations the Fed would hike rates
next week.              Canadian jobs data for February is also
due on Friday.
    In domestic data, Canadian housing starts inched higher in
February from the previous month, and building permits rose in
January as the long housing boom continued to defy expectations
of a slowdown, separate reports showed.             
    Canadian government bond prices fell across a steeper yield
curve. The two-year            slipped 3.5 Canadian cents to
yield 0.819 percent, and the 10-year             declined 32
Canadian cents to yield 1.776 percent.
    Canada will release its next federal budget on March 22,
setting the stage for a fresh estimate of how big the deficit
will get as the Liberal government spends on infrastructure to
boost the economy.             

 (Additional reporting by Fergal Smith; Editing by W Simon and
Diane Craft)
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