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

Published 2016-11-09, 11:43 a/m
CANADA FX DEBT-C$ recovers from 8-mth low, still weaker on Trump win
USD/CAD
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CL
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CA2YT=RR
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CA10YT=RR
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(Adds analyst quotes, updates prices)

* Canadian dollar at C$1.3447, or 74.37 U.S. cents

* Partly recovers from C$1.3525 overnight, weakest since March 1

* Bond prices mixed across a steeper yield curve

* 10-year yield touches its highest since May 31 at 1.332 percent

By Fergal Smith

TORONTO, Nov 9 (Reuters) - The Canadian dollar pared some 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.

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

"From a G10 perspective Canada is bearing the brunt of this Trump victory," said Jack Spitz, managing director of foreign exchange at National Bank Financial, who added that market volatility had triggered active trading by clients.

At 11:11 a.m. EST (1611 GMT), the Canadian dollar CAD=D4 was trading at C$1.3447 to the greenback, or 74.37 U.S. cents, much 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 loonie had gained against the U.S. dollar on Tuesday amid expectations that Democratic presidential candidate Hillary Clinton was likely to prevail.

"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.

U.S. stocks were little changed, rebounding from stunning overnight losses, while oil reversed most of its early losses. U.S. crude CLc1 prices were up 0.96 percent at $45.41 a barrel. O/R

Markets did not see much greater chance of a Bank of Canada rate cut. The implied probability of a cut by mid-2017 has dipped to 27 percent from above 30 percent on Friday before economic reports showed solid jobs gains for the U.S. and Canada. BOCWATCH

TD Securities said in a note to clients it raised its odds of a December cut to 33 percent from 20 percent.

Canadian short-term government debt prices firmed but long bond prices fell, steepening the yield curve in sympathy with U.S. Treasuries. Investors weighed potential for the Federal Reserve to hold off from a rate hike in December and bet that Trump will enact policies that will increase inflation. uncertainty that surrounds the change in U.S. presidency could bring with it an opportunity for (Fed Chair) Janet Yellen to hold off until 2017," Spitz said.

The two-year CA2YT=RR rose 0.5 of a Canadian cent to yield 0.579 percent and the benchmark 10-year CA10YT=RR declined 31 Canadian cents to yield 1.305 percent.

The 10-year yield touched its highest since May 31 at 1.332 percent.

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