September 12, 2017 / 1:23 PM / 3 years ago

CANADA FX DEBT-C$ weakens as yield advantage vs U.S. moderates

    * Canadian dollar at C$1.2148, or 82.32 U.S. cents
    * Canada-U.S. 5-year yield spread narrows 1.8 basis points
    * Bond prices lower across the yield curve

    TORONTO, Sept 12 (Reuters) - The Canadian dollar weakened on
Tuesday against its U.S. counterpart, as Canada's yield
advantage moderated and the greenback gained broadly.
    The gap between Canada's 5-year yield and its U.S.
equivalent narrowed by 1.8 basis points to a spread of 3.1 basis
points. Last week, the spread pushed above parity for the first
time in nearly three years after the Bank of Canada raised
interest rates for the second time in three months.             
    The Bank of Canada struck back on Monday against criticism
it had not adequately prepared markets for last week's rate hike
after a prominent economist took issue with the central bank's
lack of communication in the nearly two months leading up to the
    The U.S. dollar        rose against a basket of major
currencies as investors further unwound bearish bets against it
following a bounce in Treasury yields and ahead of U.S.
inflation data flagged as the next risk event for the market.
    At 9:05 a.m. ET (1305 GMT), the Canadian dollar          was
trading at C$1.2148 to the greenback, or 82.32 U.S. cents, down
0.3 percent.
    The currency traded in a range of C$1.2083 to C$1.2156.
    Still, the loonie has rallied more than 13 percent since
early May. It touched its strongest in more than two years on
Friday at C$1.2063.    
    Prices of oil, one of Canada's major exports, rose as
refinery restarts following Hurricane Harvey offset Hurricane
Irma's dampening effect on demand.             
    U.S. crude        prices were up 0.50 percent at $48.31 a
    Canadian government bond prices were lower across the yield
curve, with the two-year            price down 0.5 Canadian cent
to yield 1.551 percent and the 10-year             falling 16
Canadian cents to yield 2.047 percent.
    Canada's new housing price index for July is due on Thursday
and August home sales data is awaited on Friday.          

 (Reporting by Fergal Smith; Editing by Meredith Mazzilli)
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