November 1, 2016 / 9:02 PM / 9 months ago

CANADA FX DEBT-C$ firms against weaker greenback as domestic economy expands

3 Min Read

(Adds economist quotes and details on U.S. political
uncertainty and domestic infrastructure spending, updates
prices)
    * Canadian dollar ends at C$1.3393, or 74.67 U.S. cents
    * Bond prices mixed across the yield curve

    By Fergal Smith
    TORONTO, Nov 1 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Tuesday as domestic data showed
the economy expanded for a third straight month and the federal
government raised infrastructure spending, while political
uncertainty pressured the greenback.
    The U.S. dollar weakened against a basket of major
currencies on U.S. political uncertainty, while the Mexican peso
 hit a more than three-week low on positioning for a
potential victory for Republican presidential candidate Donald
Trump. 
    "It is a flight out of North America," said Shaun Osborne,
chief currency strategist at Scotiabank, adding that the euro,
Swiss franc and Japanese yen were some of the major currencies
that benefited.
    Canada's economy grew 0.2 percent in August from July, as
expected, on strength in mining, quarrying and oil and gas
extraction. 
    "It's a bit weaker than the headline would suggest," but the
Bank of Canada will take the data with "cautious optimism," said
Derek Holt, vice president and head of capital markets economics
at Scotiabank.
    Canada will ramp up its spending on infrastructure projects
by an extra C$81 billion over the next 12 years in a bid to
revitalize an economy struggling with sub-par growth, Finance
Minister Bill Morneau said. 
    Firmer investment trends from the federal government improve
the platform for growth but we are going to need the private
sector kicking into gear as well, said Nick Exarhos, economist
at CIBC Capital Markets.         
    The Canadian dollar ended at C$1.3393 to the
greenback, or 74.67 U.S. cents, slightly stronger than Monday's
close of C$1.3411, or 74.57 U.S. cents.    
    The currency's strongest level of the session was C$1.3353,
while its weakest was C$1.3427.
    It fell 2.2 percent in October and touched its weakest level
in seven months at C$1.3434 on Friday.
    Still, the Canadian dollar will strengthen over the coming
year as higher oil prices offset higher interest rates from the
U.S. Federal Reserve and a more dovish stance from the Bank of
Canada, a Reuters poll found. 
    U.S. crude oil futures settled 19 cents lower at
$46.67 a barrel ahead of data likely to show a U.S. crude
inventory build and on renewed doubts about whether OPEC will
follow through with proposed output cuts. 
    Oil is one of Canada's major exports.        
    Canadian government bond prices were mixed across the yield
curve, with the two-year price flat to yield 0.553
percent and the benchmark 10-year falling 11
Canadian cents to yield 1.208 percent.

 (Reporting by Fergal Smith; Editing by Paul Simao and James
Dalgleish)

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