August 29, 2017 / 9:00 PM / 3 years ago

CANADA FX DEBT-C$ retreats from 4-week high as greenback bounces on easing fears

    * Canadian dollar at C$1.2524 or 79.85 U.S. cents
    * Loonie touches its strongest since July 31 at C$1.2440
    * Bond prices higher across flatter yield curve
    * Ultra-long bond auction garners strong demand

    By Solarina Ho
    TORONTO, Aug 29 (Reuters) - The Canadian dollar pulled back
from a four-week high on Tuesday against a stronger greenback
that recovered from multi-year lows as nerves calmed over North
Korea's missile launch over Japan.
    The U.S. dollar        rebounded from its lowest level since
January 2015 against a basket of major currencies, as a recovery
in equity markets also helped calm fears sparked by North
Korea's missile test.                       
    At 4:00 p.m. ET (2000 GMT), the Canadian dollar          was
trading at C$1.2524 to the greenback, or 79.85 U.S. cents, down
0.2 percent.
    The currency's weakest level of the session was C$1.2550,
and it touched the strongest since July 31 at C$1.2440.
    "More broadly, the Canadian dollar has weakened a little bit
over the past couple of days. That's somewhat expected," said
Benjamin Reitzes, senior economist and foreign exchange
strategist at BMO Capital Markets.
    "Positioning is long Canadian dollars generally, and there's
probably not a lot of room to go on that front, from a
strengthening perspective."
    Prices of oil, one of Canada's major exports, extended the
previous session's losses as the market grappled with the
fallout from Tropical Storm Harvey. More than 16 percent of U.S.
refining capacity has been shutdown in the face of unprecedented
flooding in the region.             
    Canadian producer prices declined by 1.5 percent in July
from June on lower prices for motorized and recreational
vehicles, Statistics Canada said.             
    Canada's gross domestic product data for the second quarter
is due on Thursday. With a string of robust data during the
quarter, markets have almost fully priced in an October interest
rate hike by the Bank of Canada.
    Reitzes said some softer June data likely indicates the
beginning of the end of Canada's strong growth run, however,
which he said would be difficult to replicate.
    Canadian government bond prices were higher across the yield
curve, with the two-year            price up 4 Canadian cents to
yield 1.245 percent, and the benchmark 10-year            
rising 27 Canadian cents to yield 1.836 percent. The 10-year
yield touched its lowest intraday level since July 6 at 1.805
    Canada sold C$750 million of its ultra-long bond, the first
reopening since November 2014, at an allotment yield of 2.220
percent, according to the Bank of Canada.
    Analysts said the auction went very well and garnered strong
demand. Reopening of the ultra-long bond came after the central
bank raised interest rates last month for the first time in
nearly seven years, pushing up borrowing costs for shorter-dated
issues. Yields on longer-dated bonds have held at historically
low levels.

 (Additional reporting by Fergal Smith; Editing by Meredith
Mazzilli and Richard Chang)
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