May 2, 2017 / 9:03 PM / 5 months ago

CANADA FX DEBT-C$ hits 14-month low as oil price tumbles

 (Adds details on Canada's housing market and pricing of
interest rate hikes and updates prices)
    * Canadian dollar at C$1.3715, or 72.91 U.S. cents
    * Loonie touches its weakest level since Feb. 2016 at
C$1.3758
    * Bond prices higher across a flatter yield curve
    * Two-year spread vs Treasuries hits widest since January
2016

    By Fergal Smith
    TORONTO, May 2 (Reuters) - The Canadian dollar slumped on
Tuesday to a 14-month low against its U.S. counterpart as a drop
in the price of oil, one of Canada's major exports, added to
recent pressure on the currency.
    Brent crude oil prices fell to their lowest level in over
five months, erasing all of the gains since the Organization of
the Petroleum Exporting Countries agreed to cut production at
the end of November, while U.S. crude oil futures settled 2.4
percent lower at $47.66 a barrel.      
    "This is a lay-up trade right now to sell Canada almost
across the board," said Brad Schruder, director of corporate
sales and structuring at BMO Capital Markets.
    An uncertain outlook for the North American Free Trade
Agreement and mortgage market concerns are also headwinds for
the loonie, while investors are awaiting a Federal Reserve
interest rate decision on Wednesday.
    The Fed is expected to hold interest rates steady as it
pauses to parse more economic data, but it may hint it is on
track for an increase in June.             
    In contrast, the funding crisis at mortgage lender Home
Capital may spark a welcome cooling in Canada's housing market
and take pressure off the Bank of Canada to raise interest
rates.             
    Chances of an interest rate hike this year have evaporated,
data from the overnight index swaps market shows. As recently as
Friday, there was a one-in-four chance implied.           
    At 4 p.m. EDT (1600 GMT), the Canadian dollar          was
trading at C$1.3715 to the greenback, or 72.91 U.S. cents, 
weaker than Monday's close of C$1.3681, or 73.09 U.S. cents,
according to Reuters data.
    The currency's strongest level of the session was C$1.3651,
while it touched its weakest level since February 2016 at
C$1.3758.
    Canadian government bond prices were higher across a flatter
yield curve in sympathy with U.S. Treasuries as weak U.S. auto
sales pointed to slowing economic growth. The two-year
           rose 7.5 Canadian cents to yield 0.682 percent, and
the 10-year             climbed 53 Canadian cents to yield 1.519
percent.
    The two-year spread fell 2.1 basis points further below its
U.S. equivalent to a spread of -58.3 basis points, its widest
since January 2016.
    Canada's trade report for March is due on Thursday, and the
April employment report is due on Friday.            

 (Reporting by Fergal Smith; Editing by Leslie Adler)
  
 

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