May 31, 2019 / 1:35 PM / 2 months ago

CANADA FX DEBT-C$ hits 5-month low on potential threat to North American trade

    * Loonie falls 0.3% against the greenback
    * Canadian GDP grows by 0.4% annualized in the first quarter
    * Price of U.S. oil decreases 2.5%
    * Canada's 10-year yield hits a near two-year low

    By Fergal Smith
    TORONTO, May 31 (Reuters) - The Canadian dollar weakened to
a five-month low against the greenback on Friday, as potential
U.S. tariffs on Mexico threatened a new North American trade
deal and as data showed barely any growth for the domestic
economy in the first quarter.
    At 9:21 a.m. (1321 GMT), the Canadian dollar          was
trading 0.3% lower at 1.3540 to the greenback, or 73.86 U.S.
cents. The currency, which was on track to fall for the fourth
straight month, touched its weakest level since Jan. 3 at
1.3565.        
    Global stocks          fell as investors feared that U.S.
President Donald Trump's shock threat of tariffs on Mexico could
risk pushing the world's largest economy into a recession.
            
    Canada, the United States and Mexico have signed a new trade
agreement, known as the United States-Mexico-Canada Agreement
(USMCA), but the deal has yet to be ratified by any of the three
countries. 
    The tariffs would raise "serious doubts about Mexico
ratifying the USMCA," said Sal Guatieri, senior economist at BMO
Capital Markets in a note.
    The Bank of Canada has worried that trade conflicts will
hurt economic prospects. Chances of an interest rate cut this
year climbed to 60% from about 40% on Thursday, overnight index
swaps data indicated.
    The Canadian economy expanded at an annualized rate of just
0.4% in the first quarter, slightly worse than expected,
although monthly growth in March was the highest in almost a
year, Statistics Canada said.             
    The price of oil, one of Canada's major exports, was on
track for its biggest monthly drop in six months as increased
trade tensions weighed on the demand outlook. U.S. crude oil
futures        were down 2.5% at $55.19 a barrel.             
    Canadian government bond prices were higher across the yield
curve in sympathy with U.S. Treasuries. The two-year           
rose 7 Canadian cents to yield 1.486% and the 10-year
            climbed 40 Canadian cents to yield 1.510%.
    The 10-year yield touched its lowest intraday since June
2017 at 1.488%.     

 (Reporting by Fergal Smith
Editing by Susan Thomas)
  
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