February 8, 2017 / 9:41 PM / 5 months ago

CANADA FX DEBT-C$ edges higher as oil prices rebound

3 Min Read

(Adds analyst quotes and comments from Canada's foreign
minister, updates prices)
    * Canadian dollar ends at C$1.3155, or 76.02 U.S. cents
    * Bond prices higher across flatter yield curve
    * Ten-year yield touches two-month low at 1.607 percent

    By Fergal Smith
    TORONTO, Feb 8 (Reuters) - The Canadian dollar edged higher
against its U.S. counterpart on Wednesday as oil prices
rebounded and domestic housing starts climbed, while a recent
rally for the greenback lost some momentum.
    Lower U.S. Treasury yields weighed on the U.S.
dollar as investors priced out a March U.S. interest rate
hike by the Federal Reserve amid uncertainty about President
Donald Trump's economic policies. 
    European political concerns and recent losses for oil added
to downward pressure on bond yields, said Richard Gilhooly, head
of rates strategy at CIBC Capital Markets.
    "It feels like we are getting a risk-off trade."    
    U.S. crude oil futures hit a nearly three-week low
before settling 17 cents higher at $52.34 a barrel. Investors
covered short positions after a rise in U.S. crude inventories
was not as massive as many had feared. 
    Oil is one of Canada's major exports.        
    The seasonally adjusted annualized rate of Canadian housing
starts rose to a higher-than-expected 207,408 units in January,
data from the national housing agency showed, suggesting
ground-breaking on new homes was off to a strong start in 2017.
 
    The Canadian dollar ended at C$1.3155 to the
greenback, or 76.02 U.S. cents, slightly stronger than Tuesday's
close of C$1.3167, or 75.95 U.S. cents.
    The currency traded in a range of C$1.3137 to C$1.3200.
    The loonie has retreated from its strongest in more than
four months of C$1.2969 on Jan. 31. On Tuesday, it touched its
weakest in two weeks of C$1.3213.
    Investors have taken the view that the Canadian dollar will
not strengthen much further than C$1.3000, Gilhooly said.
    Canada strongly opposes the idea of the United States
imposing new border tariffs and would respond appropriately to
any such move, Foreign Minister Chrystia Freeland told
reporters. 
    Canadian government bond prices were higher across a flatter
yield curve in sympathy with Treasuries as longer-dated bonds
outperformed.
    The two-year rose 3 Canadian cents to yield 0.725
percent and the 10-year climbed 61 Canadian cents to
yield 1.619 percent.
    The 10-year yield touched its lowest intraday since Dec. 7
at 1.607 percent.
    The curve flattened even before an auction of U.S. 10-year
notes on Wednesday and 30-year bonds on Thursday as investors
bet that a sufficient discount had been built into the back end
of the Treasury curve, said Gilhooly.
    Canada's employment report for January is due on Friday. The
job market is expected to be unchanged after 2016's strong
second half. 

 (Reporting by Fergal Smith; Editing by James Dalgleish)

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