May 12, 2020 / 7:57 PM / 3 months ago

CANADA FX DEBT-Loonie slips as investors struggle to calibrate economic downturn

 (Adds strategist quotes and details throughout, updates prices)
    * Canadian dollar weakens 0.3% against the greenback
    * Price of U.S. oil increases 7.2%
    * Loonie gives back last week's rally after two days of
losses
    * Canadian bond yields trade mixed across a flatter curve

    By Fergal Smith
    TORONTO, May 12 (Reuters) - The Canadian dollar weakened
against the greenback on Tuesday but stuck to its recent trading
range as investors awaited more details on the economic impact
of the coronavirus crisis.
    The Canadian dollar          was trading 0.3% lower at
1.4039 to the greenback, or 71.23 U.S. cents. Together with
losses on Monday, the loonie has given back all of last week's
1% advance.
    The loonie is trading "with little directionality" for now,
said Bipan Rai, North America head, FX strategy at CIBC Capital
Markets. "That should change once we get a better feel for how
Q2 (second quarter) data is shaping up."
    "We're still expecting price action to remain contained
within the 1.38-1.43 range," Rai said.
    A collapse this year in oil prices has worsened the impact
of the coronavirus crisis on Canada's commodity-linked economy,
with the central bank projecting a contraction in output by as
much as 30% in the second quarter from its level at the end of
2019.
    Newly appointed Bank of Canada Governor Tiff Macklem
projected a halting economic recovery during an exclusive
interview conducted before he was named, suggesting he will
continue the central bank's loose monetary policy approach.
            
    The decline for the loonie came as leading U.S. infectious
disease expert Anthony Fauci warned Congress that a premature
opening of the nation's economy could lead to additional
outbreaks of the novel coronavirus, pressuring shares on Wall
Street.             
    Canada runs a current account deficit and is a major
exporter of commodities, including oil, so the loonie tends to
be particularly sensitive to the global flow of trade and
capital.        
    U.S. crude oil futures        were up 7.2% at $25.88 a
barrel, boosted by an unexpected commitment from Saudi Arabia to
deepen production cuts in June to help drain a supply glut built
up during the crisis.                 
    The Canadian coronavirus death toll passed the 5,000 mark
and Prime Minister Justin Trudeau said major reforms were needed
to seniors' residences, where more than 80% of the victims
lived.              Ottawa is rolling out about C$300 billion in
fiscal measures to support Canada's economy.
    Canadian government bond yields were mixed across a flatter
curve, with the 10-year            down 2.8 basis points at
0.563%.

 (Reporting by Fergal Smith; Editing by Grant McCool and Andrea
Ricci)
  
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