June 7, 2019 / 2:06 PM / 3 months ago

CANADA FX DEBT-C$ notches 7-week high as jobs gain supports BoC economic outlook

    * Canadian dollar rises 0.5% against the greenback
    * Canada adds 27,700 jobs in May
    * Loonie is on track to climb 1.7% for the week
    * Canada-U.S. 2-year spread touches narrowest since March
2018

    By Fergal Smith
    TORONTO, June 7 (Reuters) - The Canadian dollar strengthened
to a seven-week high against its U.S. counterpart on Friday,
boosted by domestic data showing a record low unemployment rate
that could give the Bank of Canada some confidence in its rosy
outlook for the economy.
    Canada added a higher-than-expected 27,700 net new jobs in
May, which followed a record gain of 106,500 positions in April,
and the unemployment rate dipped to a record low of 5.4%,
official data showed.             
    "The labor market looks like it is holding up, so I think
they (the Bank of Canada) are very comfortable with policy rates
where they are," said Andrew Kelvin, chief Canada strategist at
TD Securities. "The bank has, I think, signaled with a fair bit
of conviction that they are very comfortable with the Canadian
outlook."
    The Bank of Canada has said that a slowdown in the domestic
economy was temporary. But chances of an interest rate cut this
year by the central bank stayed high, at about 85%, after the
Canadian jobs report, with data from the United States showing a
sharp slowdown in U.S. job growth.
    At 9:32 a.m. (1332 GMT), the Canadian dollar          was
trading 0.5% higher at 1.3295 to the greenback, or 75.22 U.S.
cents. The currency, which was on track to rise 1.7% for the
week, touched its strongest intraday level since April 17 at
1.3290.
    U.S.-Mexico migration talks were set to resume on Friday as
Mexican officials continue their push to reach an agreement that
would avert U.S. tariffs set to take effect next week.
            
    Investors worry that the tariffs could undermine chances of
a new North American trade deal coming into force. Canada sends
about 75% of its exports, including oil, to the United States.
    The price of oil, one of Canada's major exports, climbed
further from five-month lows hit this week amid signs that OPEC
and other producers could extend their output reduction deal.
U.S. crude oil futures        were up 0.7% at $52.97 a barrel.
            
    Canadian government bond prices were higher across the yield
curve in sympathy with U.S. Treasuries. The two-year           
rose 6 Canadian cents to yield 1.349% and the 10-year
            climbed 33 Canadian cents to yield 1.424%.
    The gap between Canada's 2-year yield and its U.S.
equivalent narrowed by 6.4 basis points to a spread of 43.5
basis points in favor of the U.S. bond, its narrowest gap since
March last year.

 (Reporting by Fergal Smith
Editing by Chizu Nomiyama)
  
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