September 28, 2017 / 9:44 PM / 3 years ago

CANADA FX DEBT-C$ recovers from four-week low, helped by month-end flows

 (Adds analyst comments, details throughout; updates prices)
    * Canadian dollar at C$1.2428, or 80.46 U.S. cents
    * Loonie touches its weakest since Aug. 31 at $1.2519
    * Bond prices higher across much of a steeper yield curve

    By Fergal Smith
    TORONTO, Sept 28 (Reuters) - The Canadian dollar rose on
Thursday against its U.S. counterpart, recovering from a
four-week low, boosted by rebalancing of investors' portfolios
near the end of the month.
    The loonie had plunged the day before by the most since
January after Bank of Canada Governor Stephen Poloz dampened
expectations for further interest rate hikes this year.
    "A lot of clients were looking for a pullback in the
Canadian dollar to initiate hedges," said Blake Jespersen,
managing director, foreign exchange sales at BMO Capital
    "Portfolio rebalancing at month-end" added to support for
the currency, Jespersen said.    
    The loonie posted a more than 2-year high earlier in
September after the Bank of Canada hiked rates for the second
time in three months. The bank's policy rate sits at 1 percent. 
    At 5 p.m. EDT (2100 GMT), the Canadian dollar          was
trading at C$1.2428 to the greenback, or 80.46 U.S. cents, up
0.4 percent.
    The currency's strongest level of the session was C$1.2418,
while it touched its weakest since Aug. 31 at C$1.2519.
    The recovery for the loonie came even as oil gave up earlier
gains. U.S. crude oil prices        settled 58 cents lower at
$51.56 a barrel.             
    Oil is one of Canada's major exports.
    The ongoing renegotiation of the North American Free Trade
Agreement is a major source of economic uncertainty for Canada,
which would face a shock if the pact were to be ripped up, Bank
of Canada Governor Stephen Poloz said in a newspaper interview.
    Canadian average weekly earnings of nonfarm payroll
employees rose at an annual rate of 1.8 percent in July, data
from Statistics Canada showed.
    Data on Friday is expected to show that the economy grew by
0.1 percent for the same month, which would be consistent with
moderation in the pace of growth after it accelerated in the
first half of the year.         
    Canadian government bond prices were higher across much of a
steeper yield curve, with the two-year            price up 8
Canadian cents to yield 1.542 percent and the 10-year
            rising 4 Canadian cents to yield 2.13 percent.
    The gap between Canada's two-year yield and its U.S.
equivalent narrowed by 1.4 basis points to +8.7 basis points.
Earlier this month the spread reached its widest since January
2015 at 24.8 basis points.

 (Reporting by Fergal Smith; Editing by Susan Thomas and James
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