CANADA FX DEBT-C$ strengthens to 1-week high as Fed rate hike bets tumble

Fri Jun 3, 2016 4:34pm EDT
 
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(Adds analyst's quote, details on CFTC data, central bank
policy outlook, updates prices)
    * Canadian dollar ended at C$1.2943, or 77.26 U.S. cents
    * Loonie touched its strongest since May 26 at C$1.2916
    * Bond prices higher across the maturity curve
    * 10-year yield hit its lowest since April 7 at 1.175
percent.

    By Fergal Smith
    TORONTO, June 3 (Reuters) - The Canadian dollar strengthened
to a one-week high against its broadly weaker U.S. counterpart
on Friday after a slowdown in U.S. jobs growth lowered chances
of an interest rate hike by the Federal Reserve, offsetting
disappointing domestic data.
    The U.S. economy created the fewest number of jobs in more
than five years in May, pointing to labor market weakness that
could make it difficult for the Fed to raise interest rates.
 
    The Canadian dollar ended at C$1.2943 to the
greenback, or 77.26 U.S. cents, much stronger than Thursday's
close of C$1.3105, or 76.31 U.S. cents.
    The currency's weakest level of the session was C$1.3105,
while it touched its strongest since May 26 at C$1.2916. For the
week it rose 0.6 percent.
    However, the commodity-linked Canadian dollar lost ground
against some other major currencies as oil fell.
    Against the Japanese yen, the loonie hit its
lowest since April 8 at 82.19 yen, while U.S. crude oil futures
 settled 55 cents lower at $48.62.
    Investors also weighed the impact on Canada's economy if
growth in its biggest trading partner falters.
    If the U.S. economy does not accelerate as the Bank of
Canada expects it will put a rate cut "back on the table" for
later this year, said Adam Button, a currency analyst at
ForexLive.
    The implied probability of a Bank of Canada interest rate
cut this year jumped to more than 50 percent from less than 30
percent before the U.S. jobs data, overnight index swaps showed.
 
    Canada's trade deficit in April narrowed to C$2.94 billion
($2.24 billion) from a record C$3.18 billion in March.
 
    However, the volume increase in Canadian exports "was
slightly underwhelming," said Nick Exarhos, economist at CIBC
Capital Markets.
    Speculators have raised bullish bets on the Canadian dollar,
Commodity Futures Trading Commission data showed. Net long
Canadian dollar positions rose to 26,259 contracts in the week
ended May 31 from 20,047 contracts in the prior week.
    Canadian government bond prices were higher across the
maturity curve, with the two-year price up 10.5
Canadian cents to yield 0.507 percent and the benchmark 10-year
 rising 62 Canadian cents to yield 1.183 percent.
    The 10-year yield hit its lowest since April 7 at 1.175
percent.
    The gap between the yield on Canada's 2-year bond and the
comparable U.S. Treasury narrowed by 6 basis points, for a
spread of -26.9 basis points, as U.S. yields fell more sharply
than Canada's.

 (Reporting by Fergal Smith; Editing by Nick Zieminski and Alan
Crosby)