July 2, 2020 / 8:41 PM / a month ago

CANADA FX DEBT-Loonie rises as trade data supports economic recovery hopes

 (Adds details on activity and updates prices)
    * Canadian dollar gains 0.1% against the greenback
    * Canada's trade deficit narrows to C$677 million in May 
    * Price of U.S. oil increases 2.1%
    * Canadian bond yields rise across a steeper curve

    By Fergal Smith
    TORONTO, July 2 (Reuters) - The Canadian dollar edged higher
against its U.S. counterpart on Thursday as domestic data
showing a narrower-than-expected trade deficit supported hopes
of economic recovery, with the loonie adding to this week's
rally.
    Canada posted a trade deficit of C$677 million in May as
exports jumped 6.7%, data from Statistics Canada showed.
Analysts had forecast a deficit of C$3 billion.             
    "This report is consistent with the V-shaped recovery story,
as activity picked up in May after the economy bottomed in
April," said Ryan Brecht, a senior economist at Action
Economics.
    In a V-shaped recovery, activity rebounds quickly after a
sharp decline.
    Separate data showed that Canadian manufacturing activity
contracted at a slower pace in June, hinting at a turnaround. 
            
    "Yet uncertainty remains elevated, with the resurgence in
virus cases and pause in reopenings prompting worries that the
recovery stalled in late June," Brecht said.
    Several U.S. states, along with some other parts of the
world, are reversing or pausing reopenings to tackle a recent
surge in infections.    
    The loonie        was trading 0.1% higher at 1.3571 to the
greenback, or 73.69 U.S. cents, having traded in a range of
1.3560 to 1.3623. Since the start of the week it was up 0.9%.
    The Canadian dollar is likely to gain over the coming year
if a potential economic recovery from the coronavirus crisis
boosts stocks and the price of oil, assets closely tracked by
the currency, toward pre-pandemic levels, a Reuters poll showed.
            
    Wall Street closed higher after data showing a record surge
in U.S. payrolls, while U.S. crude        prices settled 2.1%
higher at $40.65 a barrel.                             
    Canadian government bond yields rose across a steeper curve
as the market reopened following the Canada Day holiday on
Wednesday. The 10-year yield             was up 3.3 basis points
at 0.560%.

 (Reporting by Fergal Smith; editing by Jonathan Oatis and
Alistair Bell)
  
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