March 22, 2018 / 9:28 PM / in a month

CANADA FX DEBT-C$ retreats from 10-day high on trade war worries

    * Canadian dollar at C$1.2940, or 77.28 U.S. cents
    * Loonie touches its strongest since March 12 at C$1.2830
    * Oil prices fall 1.3 percent
    * Bond prices higher across a flatter yield curve

    By Fergal Smith
    TORONTO, March 22 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Thursday, pulling back from an
earlier 10-day high, as the potential for a global trade war
offset optimism about a NAFTA trade deal.
    U.S. stocks slumped as President Donald Trump's move to
impose tariffs on up to $60 billion of Chinese imports drove
fears about the impact on the global economy, fueling the
biggest percentage declines in Wall Street's three major indexes
since they entered correction territory six weeks ago.
            
    "NAFTA is improving but the odds of a trade war with China
are rising," said Adam Button, currency analyst at ForexLive in
Montreal. "Right now we know the U.S. is going at China, we just
don't know how hard and we're not quite sure what Canada's role
in that is."            
    Canada's commodity-linked economy could be hurt if global
trade slowed.
    On Wednesday, the loonie posted its biggest gain against the
U.S. dollar in nearly four months, buoyed by optimism about a
deal to modernize the North American Free Trade Agreement
between Canada, Mexico and the United States.
    At 5 p.m. ET (2100 GMT), the Canadian dollar          was
trading 0.3 percent lower at C$1.2940 to the greenback, or 77.28
U.S. cents.
    The currency's weakest level of the session was C$1.2949,
while it touched its strongest since March 12 at C$1.2830.
    The price of oil, one of Canada's major exports, fell as
investors booked profits after this week's rally, but losses
were limited by the ongoing efforts of some major producers to
curb supplies.             
    U.S. crude oil futures        settled 1.3 percent lower at
$64.30 a barrel.
    Bank of Canada Senior Deputy Governor Carolyn Wilkins said
that tighter mortgage rules appear to be having the "desired
effect" of improving debt quality, but the central bank is
watching to see what impact its three recent interest rate hikes
will have on households.             
    Canadian government bond prices were higher across a flatter
yield curve in sympathy with U.S. Treasuries. The two-year
           rose 8.5 Canadian cents to yield 1.823 percent and
the 10-year             climbed 66 Canadian cents to yield 2.176
percent.
    On Wednesday, the 2-year yield touched its highest intraday
in nearly seven years at 1.909 percent.
    Domestic inflation data for February is due on Friday.

 (Reporting by Fergal Smith; Editing by Lisa Shumaker)
  
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