November 16, 2016 / 10:28 PM / 8 months ago

CANADA FX DEBT-Canadian dollar firms as investors trim bearish bets

3 Min Read

(Adds analyst quotes, Bank of Canada official comments,
background, updates prices)
    * Canadian dollar ends at C$1.3441, or 74.40 U.S. cents
    * Bond prices higher across flatter yield curve
    * 10-year yield touches 11-month high at 1.602 percent

    By Fergal Smith
    TORONTO, Nov 16 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Wednesday as domestic
manufacturing sales rose for the fourth consecutive month and
short positions in the currency were scaled back.
    The gains helped the loonie pare losses from a sell-off
sparked by last week's U.S. election. On Monday, the currency
touched its weakest in eight months at C$1.3589.
    "You are seeing some position squaring," said Blake
Jespersen, managing director, foreign exchange sales at BMO
Capital Markets, adding that short positions in the loonie had
become "very stretched."
    Speculators had raised bearish bets on the Canadian dollar
to the highest level since March, Commodity Futures Trading
Commission data showed on Monday. 
    "Ultimately, we still like the U.S. dollar higher as we get
closer to the Fed (Federal Reserve) meeting" Jespersen said.
    Investors expect the U.S. central bank to raise interest
rates in December for the first time in a year, CME Group's
FedWatch tool shows.
    The 0.3 percent September increase in Canadian manufacturing
sales topped economists' expectations for a gain of 0.1 percent,
but a dip in volumes suggested slower overall economic growth
heading into the fourth quarter.   
    U.S. crude prices settled 24 cents lower at $45.57 a
barrel as the market gave more weight to a bigger-than-expected
U.S. crude inventory build than Russia's comments about a
possible meeting with Saudi Arabia that renewed hopes for a
production freeze deal. 
    Oil is one of Canada's major exports.
    The Canadian dollar ended at C$1.3441 to the
greenback, or 74.40 U.S. cents, slightly stronger than Tuesday's
close of $1.3447, or 74.37 U.S. cents.
    The currency touched its strongest level since Thursday at
C$1.3405, while its weakest level of the session was C$1.3506.
    The Bank of Canada needs to consider the effect of an
interest rate hike by the Fed on exchanges rates and market
rates, but does not need to keep pace with U.S. policy, Bank of
Canada Deputy Governor Timothy Lane said. 
    Canadian government bond prices rose across a flatter yield
curve in sympathy with U.S. Treasuries. The two-year 
rose 0.5 Canadian cent to yield 0.66 percent and the benchmark
10-year climbed 32 Canadian cents to yield 1.502
percent.
    Still, the 10-year yield touched its highest intraday level
since December, at 1.602 percent, as investors expected U.S.
President-elect Donald Trump to pursue policies that will boost
inflation.

 (Reporting by Fergal Smith; Editing by Meredith Mazzilli and
Richard Chang)

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