February 25, 2020 / 8:54 PM / 6 months ago

CANADA FX DEBT-Loonie firms as investors shun weaker economies on spreading virus

 (Adds dealer quotes and details throughout; updates prices)
    * Canadian dollar rises 0.1% against the greenback
    * Loonie trades in a range of 1.3267 to 1.3306
    * Price of U.S. oil decreases nearly 3%
    * Canadian bond yields fall across the yield curve

    By Fergal Smith
    TORONTO, Feb 25 (Reuters) - The Canadian dollar edged higher
against its U.S. counterpart on Tuesday, clawing back some of
the prior day's decline as investors bet that Canada's economy
would hold up better than some others as the coronavirus
spreads.
    At 3:14 p.m. (2014 GMT), the Canadian dollar          was
trading 0.1% stronger at 1.3275 to the greenback, or 75.33 U.S.
cents. The currency, which on Monday hit a near two-week low at
1.3308, traded in a range of 1.3267 to 1.3306.    
    "Given the fact that commodities are getting crushed,
particularly oil, and the economic outlook is certainly being
put into question, the fact that the Canadian dollar has
remained firmly within a 1.32 to 1.3330 range is pretty
remarkable," said Michael Goshko, corporate risk manager at
Western Union Business Solutions.
    Earlier this month, the commodity-linked loonie touched its
weakest level since October at 1.3330.    
    "So far we are among the least dirty shirts in the laundry,
because we have certainly seen weakness in Japan and in Europe,"
Goshko said.
    Economic growth in the euro zone was barely positive even
before the coronavirus outbreak threatened to disrupt the global
economy, data this month showed, while the U.S. dollar       
weakened on Tuesday as expectations grew that the Federal
Reserve would cut interest rates this year to relieve pressure
on the economy caused by the virus.                         
    Canada's fourth quarter GDP data is due on Friday which
could help guide expectations for the Bank of Canada interest
rate outlook. Last month opened the door to a cut should a
recent slowdown in domestic growth persist.             
    Chances it would ease as soon as next week have climbed to
nearly 30% from 10% last Wednesday. Bank of Canada Deputy
Governor Tim Lane made no mention of future rate moves in a
speech.                           
    The price of oil, one of Canada's major exports, fell nearly
3% to $49.91 a barrel and U.S. stocks tumbled, with the selloff
accelerating after the U.S. Centers for Disease Control and
Prevention said Americans should begin to prepare for community
spread of the new coronavirus.                         
    Canadian government bond yields fell across the yield curve.
The 5-year yield was down 1.8 basis points at 1.198%, having
touched its lowest since Sept. 5 at 1.182%.
    The gap between Canada's 5-year yield and it U.S. equivalent
moved 5.1 basis points to a spread of 4.9 basis points in favor
of the Canadian bond, its highest since September 2017.

 (Reporting by Fergal Smith; Editing by Andrea Ricci and Chizu
Nomiyama)
  
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