March 13, 2020 / 1:23 PM / 4 months ago

CANADA FX DEBT-Canadian dollar rebounds from 4-year low as stimulus hopes rise

    * Canadian dollar rises 0.6% against the greenback
    * Price of U.S. oil increases 7.1%
    * Loonie is on track to decline 2.9% for the week
    * Canadian bond yields rise across a steeper yield curve

    By Fergal Smith
    TORONTO, March 13 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Friday, rebounding
from a four-year low the day before, as expectations climbed
that policymakers would provide stimulus to help contain the
economic impact of the coronavirus outbreak.    
    World stocks          and the price of oil, one of Canada's
major exports, bounced off their lows as central banks stepped
in to ease a liquidity squeeze and U.S. Democrats and
Republicans signaled they could soon agree on support measures.
            
    U.S. crude oil futures        were up 7.1% at $33.74 a
barrel. Still, prices were set for their biggest weekly slide
since the 2008 financial crisis as the virus outbreak threatened
demand and crude producers promised more supply.              
    On Thursday, the Bank of Canada said it would provide
billions of dollars of more liquidity to ensure markets continue
to operate smoothly amid increasing uncertainty sparked by the
virus. Last week, the central bank cut interest rates by 50
basis points.             
    At 8:51 a.m. (1251 GMT), the Canadian dollar          was
trading 0.6% higher at 1.3835 to the greenback, or 72.28 U.S.
cents. The currency, which on Thursday hit its weakest intraday
level since February 2016 at 1.3962, traded in a range of 1.3782
to 1.3949.
    For the week, the loonie was on track to decline 2.9%, its
biggest weekly decline since January 2015.
    Despite prospects for stimulus, economists see potential for
Canada's economy to slip into recession.
    "We're penciling in two negative quarters in Q2 and Q3 at
this point," said Nathan Janzen, a senior economist at Royal
Bank of Canada "Negatives from the virus and the oil price shock
are too much to keep growth positive."            
    Canadian Prime Minister Justin Trudeau will be in isolation
for two weeks after his wife, Sophie, tested positive for
coronavirus on Thursday, and the outbreak prompted the province
of Ontario to shutter schools to limit the spread.              
  
    The ratio of Canadian household debt-to-income narrowed to
173.7% in the fourth quarter from an upwardly revised 174.1% in
the third quarter, Statistics Canada said on Friday.
                     
    Canadian government bond yields rose across a steeper yield
curve, with the 10-year climbing 13.4 basis points to 0.727%. On
Monday, the 10-year yield hit a record low at 0.233%.

 (Reporting by Fergal Smith; Editing by Steve Orlofsky)
  
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