October 19, 2016 / 5:42 PM / a year ago

CANADA FX DEBT-C$ turns weaker as dour Bank of Canada offsets oil surge

(Recasts after Bank of Canada news conference, adds analyst
comment, updates prices)
    * Canadian dollar at C$1.3135, or 76.13 U.S. cents
    * Bond prices turn higher across yield curve

    By Fergal Smith and Alastair Sharp
    TORONTO, Oct 19 (Reuters) - The Canadian dollar fell on
Wednesday after Bank of Canada policymakers said they had
considered adding more monetary stimulus and that export
weakness could be harder to turn around than they had thought,
cancelling out earlier oil-powered gains.
    The currency had strengthened to a nearly four-week high
after a shock drop in U.S. crude inventories led to a surge in
prices for oil, a major Canadian export. 
    But those gains were erased as the central bank said it
expects a permanent shortfall in exports to shave 0.6 percentage
points off growth by the end of 2018. 
    "They're getting pretty negative about the export picture,
especially the non-energy export picture," said Michael Goshko,
corporate risk manager at Western Union Business Solutions.
    "Then the icing on the cake was when they said that the
governing council actively discussed the possibility of adding
more monetary stimulus," he said.
    The central bank cut its growth forecast, citing a looming
slowdown in housing and the weaker export outlook, but held its
overnight rate at 0.5 percent, where it has been since July
2015.
    At 1:19 p.m. EDT (1719 GMT), the Canadian dollar 
was trading at C$1.3135 to the greenback, or 76.13 U.S. cents,
weaker than Tuesday's close of C$1.3119, or 76.23 U.S. cents.
    It had touched its strongest since Sept. 22 at C$1.3012,
with U.S. crude hitting 15-month highs after government data
showed a surprisingly large drop in domestic inventories for the
sixth week out of seven.
    U.S. crude prices were last up 2.8 percent at $51.71.
    Canadian government bond prices turned higher, with the
two-year up 5.5 Canadian cents to yield 0.562 percent
and the benchmark 10-year adding 3 Canadian cents to
yield 1.191 percent.
    The premier of the Belgian region that is the main
impediment to a planned EU-Canada free trade agreement advised
postponing a summit next week to sign the deal and taking a few
more months to fix outstanding issues. 
    A Canadian government advisory group will this week
recommend the creation of an infrastructure bank and urge
increased immigration to stoke economic growth, the Globe and
Mail reported. 

 (Reporting by Fergal Smith and Alastair Sharp; Editing by Nick
Zieminski and Meredith Mazzilli)

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