April 26, 2017 / 8:34 PM / 3 years ago

CANADA FX DEBT-C$ weakens as Trump considers NAFTA withdrawal

 (Adds strategist comment, details, updates prices to close)
    * Canadian dollar settles at C$1.3612, or 73.46 U.S. cents
    * First loonie close above C$1.36 vs greenback since Feb
    * Bond prices higher across a flatter yield curve
    * 10-year spread vs the U.S. hits widest since January 2016

    By Alastair Sharp
    TORONTO, April 26 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Wednesday after a U.S. official
said the White House was considering a draft executive order to
withdraw from the NAFTA trade deal between the United States,
Canada, and Mexico.
    The loonie, as the Canadian currency is colloquially known,
ended above C$1.36 versus the greenback for the first time since
February last year, but did not breach the 14-month high it hit
during Tuesday's session after the imposition of U.S. duties
averaging 20 percent on imports of Canadian softwood lumber. 
    "For me, the most meaningful thing is that we didn't break
yesterday's dollar-Canada high, which is a bit surprising," said
Eric Theoret, a currency strategist at Scotiabank in Toronto.
    "It would suggest the market isn't attributing an extremely
high probability to this actually happening," he said, referring
to a withdrawal rather than a renegotiation of the pact.
    U.S. President Trump has long accused Mexico of destroying
U.S. jobs and recently ramped up his criticism of Canada, saying
last week that Ottawa's protection of its dairy industry was
    He proposed on Wednesday to slash tax rates for U.S.
businesses and on overseas corporate profits returned to the
    The Canadian dollar          settled at C$1.3612 to the
greenback, or 73.46 U.S. cents, compared to the Bank of Canada's
official close on Tuesday of C$1.3579, or 73.64 U.S. cents.
    The currency traded in a range of C$1.3543 to C$1.3623.
    Prices for oil, a major Canadian export, rebounded from
early losses after U.S. government data showed a
larger-than-expected falloff in crude inventories, offsetting
worries that a global crude glut was persisting despite output
cuts by producing countries.      
    Canadian retail sales fell a more-than-expected 0.6 percent
in February, data showed, while January figures were revised
slightly higher.
    The data does not alter the outlook for strong economic
growth in the first quarter, said Andrew Kelvin, senior rates
strategist at TD Securities. He expects gross domestic product
to rise around three percent annualized.
    Canadian government bond prices were higher across a flatter
yield curve, with the two-year            up 4 Canadian cents to
yield 0.739 percent and the 10-year             rising 39
Canadian cents to yield 1.478 percent.
    The 10-year yield fell 1.9 basis points further below its
U.S. equivalent to a spread of -80.5 basis points, after hitting
its widest since January 2016 during the session.

 (Additional reporting by Fergal Smith)
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