CANADA FX DEBT-C$ recovers from 8-month low, still weaker on Trump win

Published 2016-11-09, 04:39 p/m
© Reuters.  CANADA FX DEBT-C$ recovers from 8-month low, still weaker on Trump win
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(Adds strategist comment, updates prices to close)

* Canadian dollar ends at C$1.3378, or 74.75 U.S. cents

* Loonie touches its weakest since March 1 at C$1.3525

* Bond prices lower across a steeper maturity curve

* 10-year yield touches its highest since May at 1.388 percent

By Fergal Smith and Alastair Sharp

TORONTO, Nov 9 (Reuters) - The Canadian dollar pared losses after hitting an eight-month low against its U.S. counterpart on Wednesday as Republican Donald Trump's election to the White House raised fears about the outlook for Canada's trade-intensive economy.

Canada relies heavily on selling goods and services into the much larger U.S. market, and strategists said that if Trump lives up to protectionist campaign talk it could force the Bank of Canada to take more stimulative measures in order to stave off a domestic recession.

"It's hard to see how, beyond Keystone perhaps, how a Trump presidency is positive as far as Canada is concerned," said Jimmy Jean, an economic strategist at Desjardins.

"There's no question we are already in a fragile state and the key engine of growth on which we had been counting to drive us forward, now there is a big question mark around that," he said, referring to the Canadian central bank's long-stated expectation that a recovery in exports will boost overall growth.

The Canadian dollar CAD=D4 ended at C$1.3378 to the greenback, or 74.75 U.S. cents, weaker than Tuesday's close of C$1.3305, or 75.16 U.S. cents.

The currency's strongest level of the session was C$1.3265, while it touched its weakest since March 1 at C$1.3525.

The oil-linked currency recovered alongside crude prices after a sharp morning slide. U.S. crude oil futures CLc1 settled up 29 cents at $45.27 a barrel. O/R

The loonie had gained against the U.S. dollar on Tuesday, supported by expectations that Democratic presidential candidate Hillary Clinton was likely to prevail.

Trump has said he would renegotiate or scrap the North American Free Trade Agreement if elected.

"The uncertainty and the threat to tear up NAFTA are on net a mild negative for the currency (Canadian dollar) but there are certainly some small potential positives out there, especially if the U.S now embarks a stimulative fiscal policy," said Doug Porter, chief economist at BMO Capital Markets.

Canadian government bond prices were lower across a steeper yield curve in sympathy with U.S. Treasuries as investors bet that Trump would enact policies that will increase inflation. two-year CA2YT=RR fell 2 Canadian cents to yield 0.592 percent and the benchmark 10-year CA10YT=RR tumbled 93 Canadian cents to yield 1.374 percent.

The 10-year yield touched its highest since late May at 1.388 percent.

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