May 19, 2017 / 8:59 PM / 3 years ago

CANADA FX DEBT-C$ posts 3-1/2-week high, bearish bets hit record

    * Canadian dollar C$1.3517, or 73.98 U.S. cents
    * Short positions in Canadian dollar surged to 98,000
    * Loonie hits strongest since April 25 at C$1.3511
    * Bond prices mostly lower across the yield curve

    By Solarina Ho
    TORONTO, May 19 (Reuters) - The Canadian dollar strengthened
on Friday to a 3-1/2-week high against its broadly weaker U.S.
counterpart, supported in part by higher oil prices and by
investors who had sold the Canadian dollar buying it back to
reduce their exposure to the currency.
    Speculators ramped up bearish bets on the Canadian dollar to
a record high, data from the Commodity Futures Trading
Commission and Reuters calculations showed. Canadian dollar net
short positions surged to 98,000 contracts as of May 16 from
86,215 a week earlier.
    The loonie had hit a 14-month low at C$1.3793 earlier in
May, pressured in part by a more uncertain trade outlook with
the United States as well as worries over the Canadian housing
    "Both of those really led to an excessive amount of short
positioning," said Bipan Rai, executive director and senior
macro strategist at CIBC Capital Markets, noting that the
futures market, a barometer of market sentiment toward the
Canadian dollar, was at an all-time low.
    "That's somewhat surprising given we're expecting 4 percent
annualized growth for the GDP this quarter. So one of those
things had to give," said Rai, adding that the market saw some
of the short positions clear out on Friday.
    At 4:00 p.m. ET (2000 GMT), the Canadian dollar          was
trading at C$1.3517 to the greenback, or 73.98 U.S. cents, up
0.6 percent.
    The currency's weakest level of the session was C$1.3611,
while it touched its strongest since April 25 at C$1.3511.
    Prices of oil, one of Canada's major exports, touched a one
month high on expectations of a supply-cut extension. U.S. crude
       prices were up 2.03 percent to $50.35 a barrel. 
    The U.S. dollar        notched its biggest weekly drop in
more than a year against a basket of major currencies, having
given up gains made since Donald Trump, now surrounded by
political worries, was elected U.S. president last year.
    In domestic data, Canada's annual inflation rate held steady
at 1.6 percent in April, short of economists' forecasts for 1.7
percent, as higher energy prices offset a decline in food costs
for the seventh month in a row. Retail sales rose a
stronger-than-expected 0.7 percent in March.             
    Canadian government bond prices were mostly lower across the
yield curve in sympathy with U.S. Treasuries. The two-year
           price was down half a Canadian cent to yield 0.675
percent, while the benchmark 10-year             fell 24
Canadian cents to yield 1.471 percent.

 (Reporting by Solarina Ho; Additional reporting by Fergal
Smith; Editing by Bernadette Baum and Meredith Mazzilli)
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