March 4, 2020 / 2:03 PM / 4 months ago

CANADA FX DEBT-Canadian dollar gains ahead of BoC rate decision as oil prices rise

    * Canadian dollar rises 0.2% against the greenback
    * Price of U.S. oil increases 2%
    * Canadian labor productivity falls by 0.1% in fourth
quarter
    * Canadian bond yields decline across the yield curve

    By Fergal Smith
    TORONTO, March 4 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Wednesday as oil
prices rose but the gain was modest ahead of an expected
interest rate cut by the Bank of Canada that could help offset
the economic impact of the coronavirus outbreak.
    At 8:43 a.m. (1343 GMT), the Canadian dollar          was
trading 0.2% higher at 1.3365 to the greenback, or 74.82 U.S.
cents. The currency traded in a range of 1.3345 to 1.3394.
    The price of oil, one of Canada's major exports, rose on
expectations that major producers have moved closer to an
agreement to enact deeper output cuts aimed at offsetting the
slump in demand caused by the coronavirus outbreak. U.S. crude
oil futures        were up 2% at $48.14 a barrel.             
    As the virus spreads, money markets see it as likely the
Bank of Canada will cut its 1.75% benchmark interest rate by 50
basis points, which would match the size of the Federal
Reserve's easing on Tuesday.                       
    It would be the first time the central bank cut by more than
25 basis points since March 2009, when the economy was in
recession due to the global financial crisis. The rate decision
is due at 10 a.m. (1500 GMT).
    "The virus is expected to take a greater toll on Canada's
economy than the U.S.'s due to weaker commodity prices and less
underlying strength," Sal Guatieri, a senior economist at BMO
Capital Markets said in a note.
    "Lower rates are no vaccine, but they can partially treat
the symptoms of the virus by supporting confidence and shoring
up financial conditions," Guatieri said.
    Canada is prepared to act quickly to help companies hurt
financially by the outbreak of the new coronavirus and would not
need to wait for the next budget, Finance Minister Bill Morneau
said on Tuesday.             
    Canadian government bond prices were lower across the yield
curve in sympathy with U.S. Treasuries. The 10-year            
was down 1.4 basis points at 0.950%, approaching the record low
it hit in September 2019 at 0.904%.     
    Canadian labor productivity fell by 0.1% in the fourth
quarter, as both hours worked and business output were little
changed, Statistics Canada said. Compared to the same quarter in
2019, productivity was up 0.5%.             
    Canada's jobs report for February is due on Friday.

 (Reporting by Fergal Smith; Editing by David Gregorio)
  
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