March 6, 2019 / 2:05 PM / 20 days ago

CANADA FX DEBT-C$ hits 2-month low ahead of rate decision as trade deficit jumps

    * Canadian dollar falls 0.2 against the greenback
    * Loonie touches a two-month low at 1.3391
    * Price of U.S. oil falls nearly 1 percent
    * Bond prices rise across the yield curve

    TORONTO, March 6 (Reuters) - The Canadian dollar weakened to
a two-month low against its U.S. counterpart on Wednesday ahead
of an interest rate decision by the Bank of Canada, as oil
prices fell and the government reported a record high trade
deficit in December.
    The deficit widened to C$4.59 billion from a revised C$1.98
billion in November as slumping crude prices cut the value of
exports by 3.8 percent, Statistics Canada said.
    The price of oil, one of Canada's major exports, fell as
bullish output forecasts by two big U.S. producers and a build
in U.S. crude stockpiles outweighed OPEC-led production cuts.
U.S. crude oil futures        were down nearly 1 percent at
$56.02 a barrel.                      
    The Bank of Canada is widely expected to hold rates steady,
with the majority of analysts anticipating one more hike in
2019, though recent data has clouded the outlook and could force
a more dovish tone. The interest rate decision is due at 10 a.m.
(1500 GMT).             
    At 8:36 a.m. (1336 GMT), the Canadian dollar          was
trading 0.2 percent lower at 1.3383 to the greenback, or 74.72
U.S. cents. The currency touched its weakest level since Jan. 4
at 1.3391.
    The decline for the loonie came as China's foreign ministry
said that the country's customs officials had frequently
discovered "hazardous pests" in samples taken recently from
Canadian canola imports.             
    The comment came after Reuters reported that China had
canceled Canadian agribusiness Richardson International Ltd's
registration to ship canola to China, the world's top importer
of the oilseed.        
    Still, currency strategists expect the Canadian dollar to
strengthen over the coming year as rising investor appetite for
risk counters a slowdown in the domestic economy that could
deter the Bank of Canada from raising interest rates, a Reuters
poll showed.             
    Canadian government bond prices were higher across the yield
curve, with the two-year            up 4.4 Canadian cents to
yield 1.715 percent and the 10-year             rising 26.5
Canadian cents to yield 1.848 percent.
    The gap between Canada's 10-year yield and its U.S.
equivalent widened by 2.1 basis points to 86.3 basis points in
favor of the U.S. bond, the widest gap since January 2016.      
 
    Canada's employment report for February is due on Friday.

 (Reporting by Fergal Smith; Editing by Steve Orlofsky)
  
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