May 29, 2019 / 3:07 PM / 4 months ago

CANADA FX DEBT-Loonie hits 5-month low on 'neutral' Bank of Canada stance

    * Canadian dollar touches weakest since Jan. 3 at 1.3547
    * Bank of Canada leaves policy rate on hold at 1.75%
    * Price of U.S. oil falls 2.2%
    * Canada's 10-year yield hits a two-month low at 1.537%

    By Fergal Smith
    TORONTO, May 29 (Reuters) - The Canadian dollar weakened to
a near five-month low against the greenback on Wednesday before
paring its decline, as the Bank of Canada was less hawkish than
some investors had expected and as global trade tensions weighed
on financial markets.
    The central bank left its overnight rate at 1.75% but said
there was increasing evidence that the economic slowdown was
temporary and that growth accelerated in the second quarter.
            
    "It seemed like the market was expecting a more hawkish Bank
of Canada and what it got was a neutral Bank of Canada," said
Bipan Rai, North America head of FX strategy at CIBC Capital
Markets. The initial knee jerk reaction was for the loonie to
move lower."
    Money markets appeared skeptical that Canada's
trade-dependent economy will pick up, indicating that chances of
an interest rate cut this year are about 50%, unchanged from
before the rate decision.           
    Global stocks          and the price of oil, one of Canada's
major exports, fell as China signaled it was ready to use rare
earths to strike back in its trade war with the United States,
stoking concerns that the stand-off could hurt the global
economy.                         
    U.S. crude oil futures        were down 2.2% at $57.85 a
barrel.
    At 10:50 a.m. (1450 GMT), the Canadian dollar          was
trading 0.1% lower at 1.3514 to the greenback, or 74.00 U.S.
cents. The currency touched its weakest intraday level since
Jan. 3 at 1.3547.
    Toronto's stock market           will nudge higher over the
rest of the year, but investors will need to wait until the
second half of 2020 for the index to better April's record peak
as global trade tensions weigh on company earnings, a Reuters
poll found.             
    Canadian government bond prices were higher across a flatter
yield curve, with the two-year            up 4.5 Canadian cents
to yield 1.514% and the 10-year             rising 28 Canadian
cents to yield 1.545%.
    The 10-year yield hit its lowest intraday since March 28 at
1.537%.
    Canada's first-quarter gross domestic product data is due on
Friday.

 (Reporting by Fergal Smith
Editing by Paul Simao and Susan Thomas)
  
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