October 26, 2016 / 1:47 PM / in a year

CANADA FX DEBT-C$ weakens slightly as oil falls

* Canadian dollar at C$1.3355, or 74.88 U.S. cents
    * Bond prices lower across the yield curve

    TORONTO, Oct 26 (Reuters) - The Canadian dollar weakened
slightly against its U.S. counterpart on Wednesday, pressured by
lower oil prices amid doubts that major producers will agree to
output cuts.
    Oil fell for a third straight day as investors grew
increasingly doubtful that members of the Organization of the
Petroleum Exporting Countries will agree to cut output and as
U.S. inventories staged a surprisingly large increase. U.S.
crude prices were down 1.62 percent at $49.15 a barrel.
 
    Oil is one of Canada's major exports.
    The loonie has been weakening since the Bank of Canada
acknowledged last week that it had considered cutting interest
rates at its policy meeting.
    On Monday, it touched its weakest in seven months at
C$1.3398.
    Still, the implied probability of an interest rate cut by
mid-2017 has dipped to less than 30 percent since Bank of Canada
Governor Stephen Poloz told lawmakers on Monday it was not clear
cut that the central bank should try to speed up closure of the
output gap, the economy's spare capacity, by cutting rates, as
it would leave the bank very close to using unconventional
tools.
    The probability was more than 40 percent after
weaker-than-expected domestic retail sales and inflation data on
Friday. 
    At 9:19 a.m. EDT (1319 GMT), the Canadian dollar 
was trading at C$1.3355 to the greenback, or 74.88 U.S. cents,
slightly weaker than Tuesday's close of C$1.3352, or 74.90 U.S.
cents.
    The currency's strongest level of the session was C$1.3334,
while its weakest was C$1.3380.
    A planned EU-Canada summit to sign a free trade deal was
still possible on Thursday, European Council President Donald
Tusk said, as Belgian politicians entered a second day of talks
on the future of the pact. 
    Canadian government bond prices were lower across the yield
curve in sympathy with U.S. Treasuries. The two-year 
fell 1.5 Canadian cents to yield 0.550 percent. The benchmark
10-year declined 15 Canadian cents to yield 1.155
percent.
    The 10-year yield fell 0.9 of a basis point further below
its U.S. equivalent to leave a spread of -62.8 basis points, its
widest gap since March 29, indicating underperformance for U.S.
Treasuries.

 (Reporting by Fergal Smith; Editing by Will Dunham)

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