October 27, 2017 / 1:41 PM / in 2 months

CANADA FX DEBT-C$ hits 3-month low as yield spreads widen

    * Canadian dollar at C$1.2895, or 77.55 U.S. cents
    * Loonie touches its weakest since July 12 at C$1.2908
    * Bond prices higher across the yield curve
    * Canadian yields fall further below U.S. Treasury yields

    TORONTO, Oct 27 (Reuters) - The Canadian dollar weakened to
a more than three-month low against a broadly firmer greenback
on Friday as the country’s yields on government bonds fell
further below those of U.S. Treasuries.
    The gap between Canada's two-year yield and its U.S.
counterpart widened by 2.3 basis points to a spread of -18.5
basis points, its widest since July 12, when the Bank of Canada
raised interest rates for the first time in nearly seven years.
    The central bank also hiked in September, but it left its
benchmark interest rate unchanged at 1 percent on Wednesday.
    In cautiously considering another rate move, the bank said
it would observe how the economy adjusts to higher interest
rates, tighter mortgage rules and uncertainty about U.S. trade
policy. [nL2N1N00YM    
    Perceived chances of another hike by the end of the year
have fallen to 24 percent from 37 percent before the rate
decision, the overnight index swaps market shows.           
    At 9:08 a.m. ET (1308 GMT), the Canadian dollar          was
trading at C$1.2895 to the greenback, or 77.55 U.S. cents, down
0.4 percent.
    It touched its weakest since July 12 at C$1.2908.
    The U.S. dollar        climbed against a basket of major
currencies, supported by strong U.S. corporate earnings and
investors bets that interest rates in the United States would
rise faster than in Europe.             
    Data showed that the U.S. economy unexpectedly maintained a
brisk pace of growth in the third quarter as an increase in
inventory investment and a smaller trade deficit offset a
hurricane-related slowdown in consumer spending and a decline in
construction.                 
    U.S. crude        prices were down 0.34 percent at $52.46 a
barrel. Prices of oil, one of Canada's major exports, have been
hovering near their highest levels for this year amid recent
signs of a tightening market, talk of an extension of production
cuts and tensions in Iraq.             
    Canadian government bond prices were higher across the yield
curve, with the two-year            up 3.5 Canadian cents to
yield 1.439 percent and the 10-year             rising 18
Canadian cents to yield 2.012 percent.
    Bonds got a boost on Thursday after the after the European
Central Bank extended its bond purchases stimulus until at least
September next year.

 (Reporting by Fergal Smith; Edoiting by W Simon)
  
 

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