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CANADA FX DEBT-C$ hits 5-week low as Fed rate hike prospects climb
March 1, 2017 / 2:35 PM / 9 months ago

CANADA FX DEBT-C$ hits 5-week low as Fed rate hike prospects climb

    * Canadian dollar at C$1.3334, or 75.00 U.S. cents
    * Loonie touches its weakest since Jan. 20 at C$1.3346
    * Bond prices lower across the yield curve
    * Canada-U.S. 2-year spread hits largest gap since January

    TORONTO, March 1 (Reuters) - The Canadian dollar weakened on
Wednesday to a fresh five-week low against its U.S. counterpart
ahead of a Bank of Canada interest rate decision, pressured by
increased chances of a Federal Reserve interest rate hike in
    The U.S. dollar        rallied against a basket of major
currencies after hawkish comments from two of the Fed's top
officials overshadowed U.S. President Donald Trump's first major
policy speech to Congress.             
    Chances of a Fed rate hike this month rose to 71 percent
from 35 percent the day before, according to the CME Group's
FedWatch tool.
    In contrast, economists expect the Bank of Canada to leave
its policy rate on hold at 0.50 percent on Wednesday and further
wait until the second quarter of next year before hiking.
    In January, the central bank said an interest rate cut was
still possible depending on risks, including "material
consequences" if Trump enacts protectionist policies.
    Trump did not comment on the most pressing tax issue facing
Congress, a proposed border adjustment tax to boost exports over
    The Canadian dollar would be among the biggest losers if the
border tax were implemented, analysts say.             
    At 9:18 a.m. ET (1418 GMT), the Canadian dollar          was
trading at C$1.3334 to the greenback, or 75.00 U.S. cents,
weaker than Tuesday's close of C$1.3281, or 75.30 U.S. cents.
    The currency's strongest level of the session was C$1.3285,
while it touched its weakest since Jan. 20 at C$1.3346.
    Losses for the commodity-linked Canadian dollar came even as
factory data from China and the euro zone added to signs that
the global economy is regaining momentum.
    U.S. crude        prices were up 0.48 percent at $54.27 a
barrel as investors took heart from strict Organization of the
Petroleum Exporting Countries compliance with its pledge to cut
    Oil is one of Canada's major exports.
    In domestic data, the current account deficit narrowed
sharply in the fourth quarter to C$10.73 billion, its lowest in
more than five years.                 
    Canadian government bond prices were lower across the yield
curve in sympathy with Treasuries.
    The two-year            price fell 5.5 Canadian cents to
yield 0.787 percent and the 10-year             tumbled 71
Canadian cents to yield 1.716 percent.
    The 2-year yield fell 5.6 basis points further below its
U.S. equivalent to a spread of -51.4 basis points, its largest
gap since January 2016.      

 (Reporting by Fergal Smith; Editing by Nick Zieminski)

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