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CANADA FX DEBT-C$ hits 5-week low as dovish Bank of Canada weighs
March 1, 2017 / 4:30 PM / 9 months ago

CANADA FX DEBT-C$ hits 5-week low as dovish Bank of Canada weighs

 (Adds analyst quotes and details on Bank of Canada rate
decision and U.S. factory data and updates prices)
    * Canadian dollar at C$1.3345, or 74.93 U.S. cents
    * Loonie touches its weakest since Jan. 20 at C$1.3357
    * Bond prices lower across much of the yield curve
    * Canada-U.S. 2-year spread hits largest gap since January

    By Fergal Smith
    TORONTO, March 1 (Reuters) - The Canadian dollar weakened on
Wednesday against its U.S. counterpart to a fresh five-week low,
pressured by increased chances of a Federal Reserve interest
rate hike in March and a cautious tone from the Bank of Canada.
    Canada's central bank held rates steady as it stayed focused
on the "significant uncertainties" facing the economy.
    "I think they will keep doing that until we get some clarity
on U.S. policy," said Adam Cole, global head of FX strategy at
RBC Capital Markets.
    The bank said it was continuing to monitor the risks
contained in its January Monetary Policy Report, which included
a "protectionist tilt" in U.S. trade policy.
    In a speech to Congress on Tuesday, U.S. President Donald
Trump did not comment on a proposed border adjustment tax to
boost exports over imports.             
    The Canadian dollar would be among the biggest losers if the
border tax were implemented, analysts say.             
    There may be some disappointment in the market that the
central bank "didn't manage to become a little bit more
optimistic on the world," Cole said.
    The perceived chances of a rate increase by the end of the
year dipped to 29 percent from 35 before the announcement, data
from the overnight index swaps market showed.           
    In contrast, chances of a Federal Reserve rate hike in March
have surged after hawkish comments from two Fed officials, while
data showing U.S. factory activity surged to a 2-1/2-year high
in February added to support for the U.S. dollar       .
    At 11:10 a.m. ET (1610 GMT), the Canadian dollar         
was trading at C$1.3345 to the greenback, or 74.93 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$1.3357.
    U.S. crude oil        prices were down 0.17 percent at
$53.92 a barrel after data showed a build in U.S. crude stocks.
    Oil is one of Canada's major exports.
    In domestic data, the current account deficit narrowed in
the fourth quarter to C$10.73 billion, its lowest in more than
five years.             
    Canadian government bond prices were lower across much of
the yield curve in sympathy with Treasuries.
    The 10-year             declined 52 Canadian cents to yield
1.694 percent, while the 2-year yield fell 7.6 basis points
further below its U.S. equivalent to a spread of -53.4 basis
points, its largest gap since January 2016.

 (Reporting by Fergal Smith; Editing by Nick Zieminski and James

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