January 23, 2020 / 8:40 PM / 25 days ago

CANADA FX DEBT-Canadian dollar steadies but lower oil prices cloud outlook

 (Adds analyst quotes and details throughout; updates prices)
    * Canadian dollar little changed against the greenback
    * Loonie touches one-month low intraday at 1.3171
    * Price of U.S. oil decreases 2%
    * Canada's 10-year yield hits two-month low at 1.402%

    By Fergal Smith
    TORONTO, Jan 23 (Reuters) - The Canadian dollar was little
changed against the greenback on Thursday, steadying after a
dovish shift in tone by the Bank of Canada helped drive it to an
earlier one-month low, although a drop in oil prices could hurt
prospects for the currency.
    At 3:00 p.m. (2000 GMT), the Canadian dollar          was
trading nearly unchanged at 1.3127 to the greenback, or 76.18
U.S. cents. The currency hit its weakest intraday level since
Dec. 23 at 1.3171.
    "It has steadied, although the underpinnings seem shaky to
me," said Greg Anderson, global head of foreign exchange
strategy at BMO Capital Markets.
    Lower commodity prices "should usually drag CAD lower,"
Anderson said.
    The price of oil, one of Canada's major exports, extended
this week's decline on concern the spread of a virus from China
could lower fuel demand if it stunts economic growth. U.S. crude
oil futures        settled 2% lower at $55.59 a barrel.
               
    On Wednesday, the Bank of Canada left its benchmark interest
rate on hold at 1.75% as expected but said a future cut was
possible should a recent slowdown in domestic growth persist.
            
    "If the underperformance in the Canadian economy continued
into 2020, the Bank of Canada will likely need to cut rates,"
said Royce Mendes, a senior economist at CIBC Capital Markets.
    The central bank diverged in 2019 from many of its global
peers, including the U.S. Federal Reserve, by not easing. But
money markets now see a greater-than 50% chance of a rate cut by
April, up from about 20% before Wednesday's rate decision. 
          
    The loonie has fallen 1% since the start of the year after
climbing 5% in 2019, when it was the top-performing G10
currency.      
    Canada's retail sales report for November is due on Friday,
which could be closely watched by investors after the October
data showed the biggest monthly decline in nearly one year.
    Canadian government bond prices were higher across the yield
curve in sympathy with U.S. Treasuries on safe-haven demand. The
two-year            rose 5.5 Canadian cents to yield 1.519% and
the 10-year             was up 30 Canadian cents to yield
1.418%.
    The 10-year yield hit its lowest intraday level since Nov.
20 at 1.402%.

 (Reporting by Fergal Smith; editing by Jonathan Oatis and Tom
Brown)
  
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