March 31, 2017 / 8:39 PM / 5 months ago

CANADA FX DEBT-C$ strengthens as growth boosts rate hike prospects

 (Adds portfolio manager quote and details on CFTC data and
background and updates prices)
    * Canadian dollar ends at C$1.3299, or 75.19 U.S. cents
    * Loonie rises 0.6 percent for the week, 1 percent for the
quarter
    * Bond prices end mixed across the yield curve

    By Fergal Smith
    TORONTO, March 31 (Reuters) - The Canadian dollar
strengthened on Friday against the greenback, padding its gains
for the quarter, as data showing robust domestic growth in
January raised prospects of an earlier-than-expected Bank of
Canada interest rate hike.
    Canada's economy expanded by a greater-than-expected 0.6
percent in January from December, indicating first-quarter
growth will be stronger than expected. Analysts in a Reuters
survey had forecast 0.3 percent growth.             
    "Economic numbers are showing a stronger-than-expected
Canadian economy and therefore potential for the Bank of Canada
to move a little bit earlier than we thought," said Hosen
Marjaee, senior managing director, Canadian fixed income at
Manulife Asset Management.
    A majority of economists polled by Reuters in February say
the central bank will wait until 2018 before raising rates.
            
    On Tuesday, Bank of Canada Governor Stephen Poloz defended
the bank's cautious outlook on monetary policy tightening, which
contrasts with the Federal Reserve's hike this month and plans
for more.             
    But the GDP data "really makes it hard to imagine the Bank
of Canada sounding overly dovish in April," said Andrew Kelvin,
senior rates strategist at TD Securities.
    The central bank's next interest rate decision and Monetary
Policy Report are due on April 12.
    The Canadian dollar          ended at C$1.3299 to the
greenback, or 75.19 U.S. cents, stronger than Thursday's close
of C$1.3334, or 75.00 U.S. cents.
    The currency traded in a range of C$1.3284 to C$1.3368.    
    Prices of oil, one of Canada's major exports, rose for the
fourth straight day, adding to support for the loonie. U.S.
crude oil futures        settled up 25 cents at $50.60 a barrel.
    For the week, the loonie rose 0.6 percent. It finished the
first quarter with a 1 percent gain after rising more than 3
percent in 2016.
    Still, speculators have increased bearish bets on the
Canadian dollar to the most since March 2016, data from the
Commodity Futures Trading Commission and Reuters calculations
showed. Canadian dollar net short positions increased to 28,217
contracts as of March 28 from 24,403 contracts a week earlier.
    Canadian government bond prices were mixed across the yield
curve, with the two-year            flat to yield 0.751 percent
and the 10-year             rising 9 Canadian cents to yield
1.627 percent.
    The difference between Canadian and U.S. 2-year yields
narrowed by 2.4 basis points to a spread of -51.1 basis points
as Canadian government bonds underperformed.

 (Reporting by Fergal Smith; Editing by Bernadette Baum and
James Dalgleish)
  
 

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