June 12, 2019 / 7:32 PM / a month ago

CANADA FX DEBT-Loonie weakens as oil slides, trade war fears grow

 (Adds strategist quotes and details throughout, updates prices)
    * Canadian dollar trades in a range of 1.3274 to 1.3335
    * Price of U.S. oil falls 4%
    * Canadian bond prices rise across steeper yield curve

    By Fergal Smith
    TORONTO, June 12 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Wednesday, extending its pull
back from Monday's three-month high, as oil prices tumbled and
investors worried that the trade dispute between the United
States and China could worsen.
    At 3:14 p.m. (1914 GMT), the Canadian dollar          was
trading 0.4% lower at 1.3333 to the greenback, or 75.00 U.S.
cents. The currency, which touched on Monday its strongest level
since March 1 at 1.3226, traded in a range of 1.3274 to 1.3335.
    "The Canadian dollar had an incredible run last week and it
has given back a small portion of that as oil prices fall and
the market focuses back on the risk of an escalating trade war,"
said Adam Button, chief currency analyst at ForexLive.
    Wall Street's main indexes dipped over worries of a
prolonged U.S.-China trade war after Washington toughened its
stance.             
    Canada runs a current account deficit and is a major
exporter of commodities, including oil, so its economy could be
hurt by a slowdown in the global flow of trade or capital.      
 
    The price of oil was weighed down by another unexpected rise
in U.S. crude inventories and by a dimming outlook for global
oil demand. U.S. crude oil futures        settled 4% lower at
$51.14 a barrel.             
    "If oil prices fall below $50 the pain for the Canadian
dollar really begins to kick in," because at that point
investors will worry about the ability of oil companies to make
money, Button said.    
    Meanwhile, U.S. consumer prices barely rose in May, pointing
to moderate inflation that together with a slowing economy could
increase pressure on the Federal Reserve to cut interest rates
this year.             
    The loonie has benefited this month from expectations that
the Bank of Canada will cut interest rates less than the Fed
does.
    Money markets see about a 60% chance of a Bank of Canada
interest rate cut by December, while they are pricing in at
least two cuts over the same period by the Fed.
                    
    Canadian government bond prices were higher across a steeper
yield curve in sympathy with U.S. Treasuries. The two-year
           rose 5.5 Canadian cents to yield 1.449% and the
10-year             climbed 26 Canadian cents to yield 1.500%.
    On Tuesday, the 10-year yield touched its highest intraday
in 11 days at 1.543%.

 (Reporting by Fergal Smith
Editing by Nick Zieminski and James Dalgleish)
  
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