August 2, 2017 / 1:28 PM / 3 years ago

CANADA FX DEBT-C$ weakens to near 2-week low as yield spreads widen

    * Canadian dollar at C$1.2564, or 79.59 U.S. cents
    * Loonie touches its weakest since July 21 at C$1.2589
    * Bond prices slightly higher across the yield curve

    TORONTO, Aug 2 (Reuters) - The Canadian dollar weakened on
Wednesday to a nearly two-week low against its U.S. counterpart
as the gap between U.S. and Canadian yields widened after having
narrowed sharply in recent months.
    Canada's two-year yield fell 1.8 basis points further below
its U.S. counterpart to a spread of -9.9 basis points. 
    The spread last week hit its narrowest since May 2015 at
-2.4 basis points, after the Bank of Canada raised interest
rates earlier in July for the first time in nearly seven years.
    Losses for the loonie and other commodity-linked currencies,
such as the Australian and New Zealand dollars, came as a senior
administration official said U.S. President Donald Trump is
close to a decision on how to respond to what he considers
China's unfair trade practices.             
    Commodity-linked currencies could be hurt by the threat of
protectionist policies.
    At 9:05 a.m. ET (1305 GMT), the Canadian dollar          was
trading at C$1.2564 to the greenback, or 79.59 U.S. cents, down
0.2 percent.
    The currency's strongest level of the session was C$1.2533,
while it touched its weakest since July 21 at C$1.2589.
    Still, the loonie has rallied nearly 10 percent since early
May. It touched on Thursday its strongest in more than two years
at C$1.2414.
    Oil, one of Canada's major exports, shook off bearish
headlines as investors and traders took advantage of earlier
losses and pushed crude prices back towards this week's
eight-week highs.             
    U.S. crude        prices were up 0.16 percent at $49.24 a
    Canadian auto sales rose 4.9 percent in July as the industry
benefited from strong economic growth even as U.S. sales fell
for a fifth consecutive month, according to data released on
    Canadian government bond prices were slightly higher across
the yield curve, with the two-year            up 0.5 Canadian
cent to yield 1.260 percent and the 10-year             rising 7
Canadian cents to yield 1.950 percent.
    Both Canadian and U.S. jobs data for July and domestic trade
data for June are due on Friday.         

 (Reporting by Fergal Smith; Editing by Meredith Mazzilli)
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