December 17, 2018 / 9:22 PM / 10 months ago

CANADA FX DEBT-C$ slips as oil prices drop, rate hike bets fade

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    * Canadian dollar falls 0.2 percent against greenback
    * Loonie is one of two G10 currencies to decline
    * Price of U.S. oil falls 2.6 percent
    * Bond prices rise across the yield curve
    * Canada-U.S. 10-year spread reaches widest since May 2017

    By Fergal Smith
    TORONTO, Dec 17 (Reuters) - The Canadian dollar weakened
against the greenback on Monday, underperforming most other G10
currencies as oil prices fell and market players looked for a
widening gap between U.S. and  Canadian interest rates over the
coming year.
    The Federal Reserve is widely expected to raise interest
rates on Wednesday despite U.S. President Donald Trump and his
top trade adviser ratcheting up their criticism of the central
bank's monetary tightening.             
    "It is much more a rate story right now," said Scott
Lampard, head of global markets, at HSBC Bank Canada. "The
expectation is that the Bank of Canada is probably going to be a
little bit less hawkish than the Fed."
    Investors have slashed bets on additional tightening from
the Bank of Canada following a dovish interest rate announcement
from the central bank earlier this month.             
    The Bank of Canada has hiked its benchmark rate five times
since July 2017 to leave it at 1.75 percent. Money markets
expect just 25 basis points of further tightening next year,
which would leave the policy rate falling short of the central
bank's neutral rate estimate of between 2.5 percent and 3.5
percent.                       
    The neutral rate is seen as the rate at which monetary is
neither boosting nor restraining growth.
    At 4:07 p.m. (2107 GMT), the Canadian dollar          was
trading 0.2 percent lower at 1.3410 to the greenback, or 74.57
U.S. cents. The loonie, which traded in a range of 1.3373 to
1.3421, was the only G10 currency other than the Norwegian krone
to decline.
    Last week, the loonie fell 0.4 percent. It was the fourth
straight week that the currency was down.
    Losses for the loonie came as worries about slower global
growth pressured stocks and the price of oil, one of Canada's
major exports. U.S. crude oil futures        settled 2.6 percent
lower at $49.88 a barrel.                            
    Adding to the currency's headwinds, the Canadian Real Estate
Association said that home sales fell 2.3 percent in November
from October, extending recent weakness.             
    In separate data, foreign investors bought a net C$3.98
billion in Canadian securities in October, mainly in bonds,
Statistics Canada said.             
    Canadian government bond prices were higher across the yield
curve, with the 10-year             rising 41 Canadian cents to
yield 2.053 percent.
    The gap between Canada's 10-year yield and its U.S.
equivalent widened by 1.4 basis points to a spread of 80.2 basis
points, its widest since May 2017.

 (Reporting by Fergal Smith; editing by Jonathan Oatis)
  
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