June 1, 2018 / 8:55 PM / 5 months ago

CANADA FX DEBT-C$ flat as BoC July rate hike prospects offset trade risk

 (Adds strategist quote and details; updates prices)
    * Canadian dollar at C$1.2960, or 77.16 U.S. cents
    * Loonie rises 0.2 percent for week
    * Price of U.S. oil falls 1.8 percent
    * Canada-U.S. 10-year spread widens by 7.9 basis points

    By Fergal Smith
    TORONTO, June 1 (Reuters) - The Canadian dollar was little
changed against the greenback on Friday as the prospect of a
Bank of Canada interest rate hike in July offset escalating
trade tensions between Canada and the United States.
    At 4 p.m. EDT (2000 GMT), the Canadian dollar          was
near flat at C$1.2960 to the greenback, or 77.16 U.S. cents. The
currency traded in a range of C$1.2931 to C$1.3009.
    "It is mostly about the two-way risks around the Bank of
Canada presenting a view that they are going to most likely hike
rates in July versus a very weak GDP report alongside the
renewed tensions around trade and tariffs," said Mark McCormick,
North American head of FX strategy at TD Securities. "It leaves
us relatively bearish."
    President Donald Trump fired back at Canada after Ottawa and
other American allies retaliated against Washington's steel and
aluminum tariffs and he appeared to threaten possible action
against Canada's lumber industry.             
    Trump also said he might prefer to end the North American
Free Trade Agreement, which the United States is renegotiating
with Canada and Mexico, in favor of two bilateral agreements.
            
    For the week, the loonie rose 0.2 percent. It was boosted on
Wednesday by a more-hawkish-than-expected policy statement from
the Bank of Canada           .
    Data on Thursday showed Canada's economy grew at a
weaker-than-expected pace in the first quarter. But growth in
the Canadian manufacturing sector accelerated in May to its
fastest pace in more than seven years as new orders and
inventories climbed, data on Friday showed.
                        
    Speculators have cut bearish bets on the Canadian dollar,
data from the U.S. Commodity Futures Trading Commission and
Reuters calculations showed. As of May 29, net short positions
fell to 15,690 contracts from 26,212 a week earlier.
    The price of oil, one of Canada's major exports, was
pressured by a stronger U.S. dollar on Friday. U.S. crude oil
futures        settled 1.8 percent lower at $65.81 a
barrel.            
    The U.S. dollar        was helped by data showing U.S. job
growth accelerated in May.             
    Canadian government bond prices were mixed across the yield
curve, with the 10-year             falling 1 Canadian cent to
yield 2.247 percent. The gap between Canada's 10-year yield and
its U.S. equivalent widened by 7.9 basis points to a spread of
-65.5 basis points, the widest since March 20.

 (Reporting by Fergal Smith
Editing by Leslie Adler)
  
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