Canadian dollar weaker as rate outlook diverges

Tue Oct 4, 2016 5:33pm EDT
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By Alastair Sharp

TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Tuesday as the greenback made broad-based gains, with domestic equities underperforming and investors eyeing a Federal Reserve interest rate hike by the end of the year.

While tighter Canadian housing rules announced on Monday could lower barriers to a near-term Bank of Canada rate cut, most economists expect domestic rates to be stuck on hold.

"I think the Bank of Canada would rather see a C$1.35 dollar/Canada than have to cut," said Darcy Browne, managing director of foreign exchange sales at CIBC Capital Markets.

The Canadian dollar CAD=D4 ended the day trading at C$1.3194 to the greenback, or 75.79 U.S. cents, weaker than Monday's close of $1.3110, or 76.28 U.S. cents.

Canada's main stock index fell 1.1 percent, compared to losses of between 0.2 percent and 0.5 percent for Wall Street. [.TO][.N]

The spread between Canadian and U.S. 10-year yields widened by 1.4 basis points to 62.2 basis points, its widest since March.

Browne said that a weaker-than-expected jobs report on Friday could definitively push the loonie past its 200-day moving average of C$1.3221.

The currency's strongest level of the session was C$1.3114, while its weakest was C$1.3215.   Continued...

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch