August 31, 2018 / 8:30 PM / in 3 months

CANADA FX DEBT-C$ hits one-week low as NAFTA trade deal remains elusive

 (Adds strategist quote and details throughout; updates prices)
    * Canadian dollar at C$1.3050, or 76.63 U.S. cents
    * Price of U.S. oil falls 0.6 percent
    * Bond prices higher across flatter yield curve
    * Canada's 10-year yield hits a five-week low at 2.218
percent

    By Fergal Smith
    TORONTO, Aug 31 (Reuters) - The Canadian dollar weakened to
a one-week low against its U.S. counterpart on Friday as
investor optimism dimmed that a deal to revamp the NAFTA trade
pact would be reached.
    At 3:56 p.m. EDT (1956 GMT), the Canadian dollar         
was trading 0.5 percent lower at C$1.3050 to the greenback, or
76.63 U.S. cents. The Canadian currency also touched its weakest
intraday level since Aug. 24 at C$1.3089.
    The mood of talks between Ottawa and Washington to update
the North American Free Trade Agreement were soured by President
Donald Trump's comments that a pact would be on U.S. terms while
Canada stood firm against signing "just any deal."             
    U.S. Trade Representative Robert Lighthizer said in a
statement that U.S. officials would resume talks with their
Canadian counterparts next Wednesday with the aim of getting a
deal all three countries could sign.             
    Canadian Foreign Minister Chrystia Freeland was due to hold
a news conference to discuss the talks at 4:30 p.m. EDT.
    "It seems that the market is pricing out the optimism that
it had earlier in the week," said Bipan Rai, executive director
and North America head, FX Strategy at CIBC Capital Markets.
    The loonie on Tuesday hit C$1.2887 - its strongest level in
nearly three months - as investors bet that a deal would be done
by a Friday deadline. For the week, it was on track to fall 0.2
percent.
    Canada sends about 75 percent of its exports to the United
States, so its economy could be hurt if a deal is not reached.  
 
    On Thursday, data showed that the Canadian economy expanded
in the second quarter at the fastest pace in a year as exports
climbed, but the improved growth was not expected to trigger an
interest hike next week from the Bank of Canada.                
        
    The price of oil, one of Canada's major exports, fell as
concerns over the impact of a trade war depressed sentiment.
U.S. crude oil futures        settled down 0.6 percent at $69.80
a barrel.      
    Speculators have cut bearish bets on the Canadian dollar,
data from the U.S. Commodity Futures Trading Commission and
Reuters calculations showed. As of Aug. 29, net short positions
had fallen to 24,789 contracts from 27,021 a week earlier.
    Canadian government bond prices were higher across a flatter
yield curve, with the 10-year             rising 38 Canadian
cents to yield 2.228 percent. The 10-year yield hit its lowest
intraday since July 25 at 2.218 percent.

 (Reporting by Fergal Smith, editing by G Crosse)
  
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