August 8, 2018 / 5:04 PM / 3 months ago

CANADA FX DEBT-C$ pares its decline after hitting 2-week low on Saudi dispute

 (New throughout)
    * Canadian dollar at C$1.3074, or 76.49 U.S. cents
    * Loonie touches its weakest since July 25 at C$1.3121
    * Price of U.S. oil falls 4 percent     
    * Bond prices higher across a flatter yield curve

    By Fergal Smith
    TORONTO, Aug 8 (Reuters) - The Canadian dollar weakened to a
two-week low against its U.S. counterpart on Wednesday but pared
its losses as investors decided that the impact on the currency
of potential Canadian asset sales by Saudi Arabia will be
short-lived.
    The Saudi central bank and state pension funds have
instructed their overseas asset managers to dispose of their
Canadian equities, bonds and cash holdings "no matter the cost",
 after Ottawa criticized the arrest of a female activist, the
Financial Times reported, citing sources.             
    The kingdom said on Wednesday there is no room for mediation
in the deepening diplomatic dispute.             
    "There has been some two-way volatility, indicative of not
just price pressures on commodity currencies but also, of
course, the headlines about Saudi Arabia," said Bipan Rai,
executive director and North America head, FX strategy at CIBC
Capital Markets.
    "Then we have seen the CAD gain ground somewhat as some of
the fog has cleared and investors slowly come to the realization
that any sort of impact on the CAD from the Saudi selling should
be ephemeral."
    CIBC estimates that Canadian dollar-denominated FX reserves
held by Saudi Arabia to be roughly C$10 billion to C$25 billion,
or less than 10 percent of daily volume in the currency.        
    
    The price of oil       , one of Canada's major exports, fell
about 4 percent after Chinese import data showed a slowdown in
demand and as a trade dispute between Washington and Beijing
escalated.             
    Canada runs a current account deficit, so its economy could
be hurt if the flow of trade or capital slows.
    At 12:52 p.m. EDT (1652 GMT), the Canadian dollar         
was trading 0.2 percent lower at C$1.3074 to the greenback, or
76.49 U.S. cents, having pared its earlier decline. The currency
touched its weakest intraday since July 25 at C$1.3121.
    On Tuesday, the loonie touched its strongest in nearly eight
weeks at C$1.2963. It benefited over recent days from data
showing stronger-than-expected growth in Canada's economy in May
and a record high for the country's exports in June.
    The value of Canadian building permits unexpectedly dropped
by 2.3 percent in June from May on weakness in the residential
sector.             
    Canada's jobs data for July is due on Friday.
    Canadian government bond prices were higher across a flatter
yield curve. The two-year            rose 0.5 Canadian cent to
yield 2.127 percent and the 10-year             gained 7
Canadian cents to yield 2.361 percent.

 (Reporting by Fergal Smith; Editing by Stegve Orlofsky and
Jonathan Oatis)
  
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