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CANADA FX DEBT-C$ slides as BoC cools January rate hike expectations
December 6, 2017 / 9:41 PM / in 9 days

CANADA FX DEBT-C$ slides as BoC cools January rate hike expectations

 (Updates prices)
    * Canadian dollar at C$1.2795, or 78.16 U.S. cents
    * Bank of Canada leaves benchmark interest rate at 1 percent
    * Chances of a hike in January decline to 26 percent
    * Bond prices higher across the yield curve

    By Fergal Smith
    TORONTO, Dec 6 (Reuters) - The Canadian dollar fell on
Wednesday against its U.S. counterpart after the Bank of Canada
held interest rates steady and showed enough caution to dampen
expectations for a hike early next year.
    The central bank left its benchmark interest rates on hold
at 1 percent, as expected. Despite rising employment and
participation rates, other indicators point to ongoing - albeit
diminishing - slack in the labor market, the central bank said.
            
    Investors had been interested in how the Bank of Canada
would characterize the labor market after data on Friday showed
a much stronger-than-expected jobs gain in November.
    "I think on balance their overwhelming focus remains on the
uncertainties ... so they provided no clue of a rate hike
anytime soon," said Derek Holt, head of capital markets
economics at Scotiabank.
    Chances of a rate hike in January fell to 26 percent from 41
percent before the announcement, the overnight index swaps
market indicated.           
    The central bank raised rates in July and September for the
first time in seven years but has since worried about a number
of uncertainties that could have an impact on the country's
economy, including renegotiation of the North American Free
Trade Agreement.
    At 4 p.m. (2100 GMT), the Canadian dollar          was
trading at C$1.2795 to the greenback, or 78.16 U.S. cents, down
0.9 percent.
    The currency's strongest level of the session was C$1.2654,
while it touched its weakest since Friday at C$1.2808.
    On Tuesday, it touched its strongest level in six weeks at
C$1.2624.
    Adding to headwinds for the loonie were lower prices for
oil, one of Canada's major exports.
    U.S. crude        futures settled 1.7 percent lower at
$55.96 a barrel after a sharp rise in U.S. inventories of
refined fuel suggested demand may be flagging.             
    The U.S. dollar        rose against a basket of major
currencies as market participants grew more optimistic about
lawmakers' progress on U.S. tax legislation.             
    The labor productivity of Canadian businesses fell by 0.6
percent in the third quarter, the second consecutive decline, as
the number of hours worked grew faster than business output.
            
    Canadian government bond prices were higher across the yield
curve, with the two-year            up 7 Canadian cents to yield
1.499 percent and the 10-year             rising 32 Canadian
cents to yield 1.855 percent.
    The gap between the 2-year yield and its U.S. equivalent
widened by 2.9 basis points to a spread of -31.8 basis points.

 (Reporting by Fergal Smith; Editing by Susan Thomas and Peter
Cooney)
  

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