January 15, 2018 / 9:41 PM / 3 years ago

CANADA FX DEBT-C$ posts near 1 week high ahead of potential rate hike

 (Adds dealer quotes and background details; updates prices)
    * Canadian dollar at C$1.2425, or 80.48 U.S. cents
    * Loonie touches its strongest since Tuesday at C$1.2403
    * Bond prices lower across much of the yield curve

    By Fergal Smith
    TORONTO, Jan 15 (Reuters) - The Canadian dollar strengthened
to a nearly one-week high against its U.S. counterpart on Monday
as the greenback broadly fell and investors braced for a
potential interest rate increase by the Bank of Canada this
    At 4 p.m. EST (2100 GMT), the Canadian dollar          was
trading at C$1.2425 to the greenback, or 80.48 U.S. cents, up
0.3 percent. The currency touched its strongest since Tuesday at
    The central bank will kick off 2018 by raising interest
rates, buoyed by robust job growth, even as uncertainty around
the fate of the North American Free Trade Agreement lingers, a
Reuters poll found.             
    "It is not so much the actual move this week that is going
to cause the market reaction, it is the narrative around it and
what does that mean for the future path of rates," said Scott
Lampard, head of global markets at HSBC Bank Canada.
    Money markets expect a rate increase on Wednesday and at
least two more by the end of the year.           
    But the central bank may raise rates at a slower pace than
that due to worries about the impact of higher interest rates on
heavily indebted consumers, Lampard said.
    Canadian household debt as a share of income reached a
record high of 171.1 percent in the third quarter.            
    The U.S. dollar        fell against a basket of major
currencies as expectations that the European Central Bank will
tighten monetary policy helped boost the euro.             
    Speculators have raised bullish bets on the Canadian dollar
for the first time in three weeks, data from the U.S. Commodity
Futures Trading Commission and Reuters calculations showed on
    Lending to Canadian small businesses perked up in November
after declining for the past six months, data showed.
    Resales of Canadian homes rose 4.5 percent in December from
November, the fifth straight monthly rise, likely because
activity was pulled forward to avoid mortgage rule changes that
hit in January, the Canadian Real Estate Association said.
    The price of oil, one of Canada's major exports, hovered
near a three-year high on signs that production cuts by OPEC and
Russia are tightening supplies.             
    U.S. West Texas Intermediate crude futures        gained 51
cents to $64.81 a barrel.
    Canadian government bond prices were lower across much of
the yield curve, with the two-year            down 3 Canadian
cents to yield 1.775 percent and the 10-year             falling
10 Canadian cents to yield 2.188 percent.

 (Reporting by Fergal Smith; Editing by Nick Zieminski)
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