October 19, 2018 / 7:35 PM / 2 years ago

CANADA FX DEBT-C$ hits 5-week low as data supports gradual rate hike approach

 (Adds details on activity and updates prices)
    * Canadian dollar weakens 0.2 percent against the greenback
    * Loonie touches a five-week low at 1.3132
    * Canada's inflation rate falls in September to 2.2 percent
    * Canada-U.S. 10-year spread widens to most in nearly three

    By Fergal Smith
    TORONTO, Oct 19 (Reuters) - The Canadian dollar weakened to
its lowest in more than five weeks against the greenback on
Friday after domestic data showing a slowdown in inflation
suggested the Bank of Canada would be unlikely to speed up the
pace of interest rate hikes.
    The annual inflation rate in September dipped to 2.2 percent
from 2.8 percent as price pressures from fuel and air travel
eased. Analysts had forecast an annual rate of 2.7 percent.
    The central bank's three core inflation measures all fell,
for the first time since November 2016.
    "This should really quell a lot of speculation that the Bank
of Canada will move away from the gradual path of tightening,"
said Andrew Kelvin, senior rates strategist at TD Securities.
    The central bank said in September that it had discussed
dropping its gradual approach to raising rates. A faster pace of
tightening could boost the loonie.
    Money markets still expect the Bank of Canada to lift its
policy rate by 25 basis points next week to 1.75 percent, but
the amount of tightening seen by the end of 2019 slipped to 93
basis points from 96 basis points before the data.           
    Separate data showed that the value of Canadian retail trade
unexpectedly fell by 0.1 percent in August, the second decline
in three months.
    At 3:04 p.m. (1904 GMT), the Canadian dollar          was
trading 0.2 percent lower at 1.3115 to the greenback, or 76.25
U.S. cents. The currency touched its weakest since Sept. 11 at
    For the week, the loonie declined 0.7 percent. It was the
third consecutive week the loonie lost ground.    
    The price of oil, one of Canada's major exports, rose on
Friday on signs of surging demand in China, the world's
second-biggest oil consumer. U.S. crude oil futures       
settled 0.7 percent higher at $69.12 a barrel.             
    Still, the market declined for a second week on rising U.S.
inventories and concern that trade wars were curbing economic
    Canadian government bond prices edged higher across much of
a steeper yield curve, with the 10-year             rising 5
Canadian cents to yield 2.493 percent.    
    The gap between the 10-year yield and its U.S. equivalent
widened by 2.9 basis points to a spread of 70.5 basis points in
favor of the U.S. bond, the biggest gap since July 24. 

 (Reporting by Fergal Smith
Editing by Frances Kerry and Tom Brown)
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