October 23, 2018 / 8:45 PM / a year ago

CANADA FX DEBT-C$ shakes off plunge in oil as investors brace for rate hike

 (New throughout)
    * Canadian dollar rises 0.1 percent against the greenback
    * Price of U.S. oil tumbles 4.2 percent
    * Canadian bond prices rally across the yield curve
    * 10-year yield hits its lowest in nearly four-weeks

    By Fergal Smith
    TORONTO, Oct 23 (Reuters) - The Canadian dollar edged higher
against its U.S. counterpart on Tuesday as investors maintained
bets that the Bank of Canada will hike interest rates on
Wednesday even as oil prices plunged.
    At 3:43 p.m. (1943 GMT), the Canadian dollar          was
trading 0.1 percent higher at 1.3088 to the greenback, or 76.41
U.S. cents.
    The currency, which on Friday hit its weakest level in more
than five weeks at 1.3132, traded in a narrow range of 1.3082 to
    "I think it is in a holding pattern, waiting for the Bank of
Canada tomorrow," said Colin Cieszynski, chief market strategist
at SIA Wealth Management.
    The central bank, which sees Canada's economy operating near
capacity, has hiked four times since July 2017 to leave its key
policy rate at 1.50 percent.     
    Chances of a rate increase on Wednesday held at more than 90
percent despite further volatility in global equity markets and
a sharp drop in the price of oil, one of Canada's major exports.
    U.S. crude oil futures        settled 4.2 percent lower at
$66.43 a barrel as the sell-off in stocks raised worries about
demand growth and after Saudi Arabia said it could supply more
crude quickly if needed, easing concerns ahead of U.S. sanctions
on Iran.             
    Canada runs a current account deficit, so its economy could
be hurt if the global flow of trade or capital slows.
    A deep discount for Canadian heavy crude could explain why
the slump in U.S. oil prices had little impact on the loonie, 
Cieszynski said.
    "We didn't participate as much when (U.S.) oil was going up
so therefore we haven't been getting hit when it goes back
down," he said.
    Canadian government bond prices were higher across the yield
curve in sympathy with U.S. Treasuries as investors sought
safety in low-risk debt.             
    The two-year            rose 3.5 Canadian cents to yield
2.277 percent and the 10-year             climbed 30 Canadian
cents to yield 2.449 percent.
    The 10-year yield touched its lowest intraday since Sept. 28
at 2.418 percent.  

 (Reporting by Fergal Smith; editing by Jonathan Oatis and
Sandra Maler)
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