May 6, 2019 / 8:26 PM / 5 months ago

CANADA FX DEBT-Loonie hits 10-day low on U.S-China trade war threat

 (Adds strategist quote and details on activity; updates prices)
    * Canadian dollar falls 0.1% against the greenback
    * Loonie touches its weakest since April 26 at 1.3494
    * Price of U.S. oil increases 0.5%
    * Canadian bond prices rise across a flatter yield curve

    By Fergal Smith
    TORONTO, May 6 (Reuters) - The Canadian dollar weakened to a
10-day low against its U.S. counterpart on Monday before paring
its losses, as investors worried about a potential escalation of
the trade dispute between the United States and China.
    Global stocks          fell after U.S. President Donald
Trump, in a surprising move, threatened to hike tariffs on
Chinese goods this week.             
    Canada runs a current account deficit and exports many
commodities, including oil, so its economy could suffer if the
global flow of capital or trade slows.
    "If a trade war breaks out, then definitely demand for
energy will be lower, so that also effects the loonie," said
Alfonso Esparza, a senior currency analyst at OANDA.
    The price of oil turned higher in volatile trade as rising
tensions between the United States and Iran buoyed prices after
they touched a one-month low following Trump's tariff threat.
U.S. crude oil futures        settled 0.5% higher at $62.25 a
barrel.
    Bank of Canada Governor Stephen Poloz said it was impossible
to predict the consequences of an escalation in the U.S.-China
trade dispute. He also said the housing sector was solid despite
a series of challenges and called for a more flexible mortgage
market to help make the country's financial system safer.
            
    At 3:43 p.m. (1943 GMT), the Canadian dollar          was
trading 0.1% lower at 1.3437 to the greenback, or 74.42 U.S.
cents.
    The currency, which gained 0.3% last week as U.S. data
showed muted wage inflation, touched its weakest intraday level
since April 26 at 1.3494.     
    On Friday, data from the U.S. Commodity Futures Trading
Commission and Reuters calculations showed that speculators had
cut their bearish bets on the Canadian dollar for the second
straight week. As of April 30, net short positions had fallen to
46,745 contracts from 47,493 in the prior week.
    Canadian government bond prices were higher across a flatter
yield curve in sympathy with U.S. Treasuries. The two-year
           rose 3.5 Canadian cents to yield 1.624% and the
10-year             gained 26 Canadian cents to yield 1.737%.
    The 10-year yield touched on Friday its highest intraday
since April 23 at 1.790%.

 (Reporting by Fergal Smith; Editing by Peter Cooney)
  
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