March 2, 2018 / 9:30 PM / 9 months ago

CANADA FX DEBT-C$ hits 10-week low on U.S. tariff threat, GDP miss

 (Adds strategist quotes and details throughout; updates prices)
    * Canadian dollar at C$1.2887, or 77.60 U.S. cents
    * Loonie touches its weakest since Dec. 19 at C$1.2915
    * Bond prices lower across the yield curve
    * 10-year yield touches lowest intraday since Jan. 17 

    By Fergal Smith
    TORONTO, March 2 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Friday, adding to 10-week lows
as data showed slower-than-expected growth in the domestic
economy and investors braced for planned U.S. tariffs on steel
and aluminum.
    At 4 p.m. EST (2100 GMT), the Canadian dollar          was
trading 0.4 percent lower at C$1.2887 to the greenback, or 77.60
U.S. cents. It touched its weakest level since Dec. 19 at
C$1.2915.
    U.S. President Donald Trump unveiled the tariffs on Thursday
but did not make clear whether they would apply to Canada, which
is the largest supplier of both steel and aluminum to the United
States.             
    "Presuming the sanctions cover Canada, it hurts," said Greg
Anderson, global head of foreign exchange strategy in New York.
"This is a fluid situation ... there is still some chance that
Canada gets exempted."
    Trump's threats to unleash a trade war over steel crushed
any hopes of substantial progress in talks to rework the North
American Free Trade Agreement.                     
    Canada sends 75 percent of its goods exports to the United
States. A collapse of NAFTA could hurt its economy, which grew
by an annualized 1.7 percent in the final quarter of 2017, short
of economists' forecasts for 2.0 percent.             
    "It is just consistent with an economy that is seeing growth
converge back to its trend pace," said Andrew Kelvin, senior
rates strategist at TD Securities.    
    Still, money markets expect another interest rate hike from
the Bank of Canada by July. The central bank raised its
benchmark interest rate in January to 1.25 percent, its third
hike in six months.              
    The price of oil, one of Canada's largest exports, rose on
Friday, but posted its first weekly fall in three weeks.
                
    Speculators cut bullish bets on the Canadian dollar for the
third straight week, data from the U.S. Commodity Futures
Trading Commission and Reuters calculations showed. As of Feb.
27, net long positions had fallen to 22,220 contracts from
23,127 a week earlier.
    Canadian government bond prices edged lower across the yield
curve in sympathy with U.S. Treasuries after the Bank of Japan's
chief hinted at a possible exit from its ultra-easy policies.
            
    The 10-year             fell 19 Canadian cents to yield
2.201 percent. Intraday, it had touched its lowest since Jan. 17
at 2.155 percent.
    The gap between Canada's 10-year yield and its U.S.
equivalent widened by 4.1 basis points to -66.7 basis points,
its widest since June 26.

 (Reporting by Fergal Smith; editing by Grant McCool)
  
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