January 10, 2018 / 9:53 PM / 3 years ago

CANADA FX DEBT-C$ slides as NAFTA worries dent rate hike bets

 (Updates prices)
    * Canadian dollar at C$1.2545, or 79.71 U.S. cents
    * Loonie touches its weakest since Dec. 29 at C$1.2583
    * Bond prices rise across the yield curve
    * Canada-U.S. 2-year spread widens by 7.3 basis points

    By Fergal Smith
    TORONTO, Jan 10 (Reuters) - The Canadian dollar weakened to
its lowest this year against the greenback on Wednesday as
worries of a U.S. NAFTA withdrawal tempered bets that the Bank
of Canada will raise interest rates next week.
    Canada is increasingly convinced that U.S. President Donald
Trump will soon announce that the United States intends to pull
out of the North American Free Trade Agreement, two government
sources said.             
    Canada sends about 75 percent of its exports to the United
    Developments on NAFTA could throw a "monkey wrench" into
prospects of a rate hike next week, said Mark McCormick, North
American Head of FX Strategy at TD Securities.
    Chances of the Bank of Canada raising rates next week
slipped to 64 percent, the overnight index swaps market
indicated. They had climbed to nearly 90 percent after much
stronger-than-expected domestic jobs data on Friday and a
business survey on Monday that showed optimism.           
    At 4 p.m. EST (2100 GMT), the Canadian dollar          was
trading at C$1.2545 to the greenback, or 79.71 U.S. cents, down
0.6 percent.
    The currency touched its weakest level since Dec. 29 at
C$1.2583, extending its retreat from a three-month high on
Friday at C$1.2355.
    The price of oil, one of Canada's major exports, was buoyed
by a fall in U.S. crude inventories. U.S. crude oil futures
       settled nearly 1 percent higher at $63.57 a barrel.
    The U.S. dollar        fell against a basket of major
currencies after a report that China may slow or halt its
purchases of U.S. Treasury bonds, with the greenback on track to
post its biggest single-day drop against the Japanese yen in
seven weeks.             
    The value of Canadian building permits fell by 7.7 percent
in November from October, Statistics Canada said. Analysts
surveyed by Reuters had expected a decrease of 0.3 percent.
    Canadian government bond prices were higher across the yield
 curve, with the two-year            up 11.5 Canadian cents to
yield 1.734 percent and the 10-year             rising 36
Canadian cents to yield 2.160 percent.
    Earlier in the session, the 10-year yield had touched its
highest since September 2014 at 2.231 percent.
    The gap between Canada's two-year yield and its U.S.
counterpart widened by 7.3 basis points to a spread of -24.3
basis points.

 (Reporting by Fergal Smith; Editing by Tom Brown and Sandra
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