January 24, 2017 / 10:25 PM / 10 months ago

CANADA FX DEBT-C$ strengthens as Trump revives Keystone XL pipeline

(Adds broker comment, updates prices to close)
    * Canadian dollar settles at C$1.3161, or 75.98 U.S. cents
    * Loonie's close is strongest since Jan. 17
    * Bond prices lower across yield curve

    By Alastair Sharp
    TORONTO, Jan 24 (Reuters) - The Canadian dollar hit its
strongest close in a week against its U.S. counterpart on
Tuesday as U.S. President Donald Trump signed an executive order
putting the Keystone XL pipeline back in play.
    "That last bastion of dollar bulls got squeezed out today,"
said Darcy Browne, managing director of foreign exchange sales
at CIBC Capital Markets, adding that signs Canada may escape the
worst effects of a renegotiation of the NAFTA trade pact also
boosted sentiment.
    "There are people trying to stay long U.S. dollars on the
back of the fundamentals, on the back of the central bank
divergence, on the difference of the rate spreads, but it's not
parlaying into the price of the currency because it's the
political landscape that's shaping the short-term market," he
said.
    Trump signed orders smoothing the path for Keystone and for
the Dakota Access oil pipeline on Tuesday, rolling back key
Obama administration environmental actions in favor of expanding
energy infrastructure. 
    If constructed, Keystone would provide oil producers in
Canada with a quicker route to send crude to U.S. Gulf Coast
refiners. Oil is one of Canada's major exports.
    The Canadian dollar settled at C$1.3161 to the
greenback, or 75.98 U.S. cents, stronger than Monday's close of
C$1.3267, or 75.37 U.S. cents, and its strongest settlement
since Jan. 17.
    It has moved sharply but remained within a C$1.30 to C$1.36
range since September.
    The U.S. dollar recovered from a dip on fears that
Trump's focus on protectionism over fiscal stimulus suggested
his administration might be content to gain a competitive
advantage through a weaker currency. 
    The head of a business advisory council to Trump played down
on Monday the risk to Canada from any changes to the North
American Free Trade Agreement. Canadian officials
are convinced Mexico will suffer the most damage from changes to
the trade pact, sources said. 
    Trump pulled out of the Trans-Pacific Partnership on Monday,
which Canada said means it cannot proceed. 
    Meanwhile a planned EU-Canada free-trade deal moved closer
to reality on Tuesday after a key committee advised the European
Parliament to give its backing after months of protests and
heated debate. 
    Canadian government bond prices were lower across the yield
curve, with the two-year price down 8 Canadian cents
to yield 0.788 percent and the benchmark 10-year 
declining 66 Canadian cents to yield 1.759 percent.
    Yields had dipped on Monday as Trump's tough stance on trade
spurred safe-haven demand for bonds.

 (Reporting by Fergal Smith; Editing by Bill Trott and Andrew
Hay)

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