CANADA FX DEBT-C$ dips as oil prices fall, investors brace for Fed decision

April 25, 2016 CNBC

The Canadian dollar edged lower against its U.S. counterpart on Monday as oil prices fell and investor attention turned to an interest rate announcement this week by the Federal Reserve. Stronger-than-expected retail sales data had helped the loonie post its fourth consecutive week of gains on Friday. The currency has rallied 16 percent since falling to a 12-year low in January, helped by a smaller gap between Canadian and U.S. bond yields and a rebound in oil prices since February. However, no one is willing to make big bets on the loonie ahead of the Fed decision, leaving the currency to fluctuate with oil prices, said Scott Smith, senior market analyst at Cambridge Global Payments. Oil prices fell as data pointed to fresh U.S. crude builds. U.S. crude prices settled more than $1 lower at $42.64 a barrel. “We will more or less be range bound in terms of market activity until we get more clarification from the Federal Reserve in terms of how they see the global economic outlook,” said Smith. Federal Reserve policymakers are expected to hold interest rates steady at Wednesday’s announcement, but may tweak their description of the economic outlook to leave the path open for future rate rises. The Canadian dollar closed at C$1.2686 to the greenback, or 78.83 U.S. cents, slightly weaker than Friday’s close of C$1.2671, or 78.92 U.S. cents. The currency’s strongest level of the session was C$1.2653, while its weakest was C$1.2717. Last week the loonie touched its strongest since July 6 at C$1.2593. Canadian government bond prices were lower across the maturity curve, with the two-year price down 3.5 Canadian cents to yield 0.696 percent and the benchmark 10-year falling 27 Canadian cents to yield 1.545 percent. The 10-year yield touched its highest since Dec. 7 at 1.564 percent, while its gap to the U.S. 10-year yield reached its smallest since Jan. 26 last year at -37 basis points. Bank of Canada Governor Stephen Poloz will gives a speech to the Investment Industry Association of Canada and Securities Industry and Financial Markets Association in New York on Tuesday, while Canada’s gross domestic product data for February is due at the end of the week.

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