July 16, 2019 / 5:07 PM / 3 months ago

CANADA FX DEBT-Loonie tests 9-month peak as lower oil offsets yield rise

    * Canadian yields climb in step with U.S. counterparts
    * U.S. oil futures fall as supply concerns fade

    By Richard Leong
    July 16 (Reuters) - The Canadian dollar held steady against
its U.S. counterpart on Tuesday, hovering near a nine-month
high, as a drop in U.S. oil prices offset a rise in domestic
bond yields that moved in step with higher U.S. yields.
    The loonie has gained sharply against the greenback in
recent days as the Bank of Canada showed no signs it was
prepared to lower interest rates anytime soon.             
    Canadian policy-makers' current stance come at a time as
soft inflation data and global trade disputes have led other
central banks including the Federal Reserve to signal they are
ready to provide stimulus to counter an economic slowdown.
    "The currency has been on a tear the last few weeks. We are
taking a breather," said Mazen Issa, senior FX strategist at TD
Securities in New York.
    At 12:49 p.m. (1649 GMT), the Canadian dollar          was
0.06% lower at C$1.3058 per U.S. dollar, retreating from an
earlier peak of C$1.3023.
    Last Friday, it strengthened to C$1.3077, its strongest
level versus the U.S. dollar since Oct. 25.
    The yields on Canadian 10-year government debt             
were up 1.40 basis points at 1.606%, while 10-year Treasury
yields             rose 3.20 basis points at 2.124%.
    U.S. yields rose in reaction to news of a
stronger-than-forecast 0.4% increase in U.S. retail sales last
month.             
    Traders thought the latest retail sales figures may put less
pressure on the Federal Reserve to lower key lending rates by an
aggressive half a point at its next policy meeting at the end of
July, based on U.S. interest rates futures.
    They still expect the Fed to lower for a first time in a
decade in two weeks, albeit by a more modest quarter-point
decrease. 
    In the meantime, analysts expect the BOC may not able to
stay pat on rates for long if the Fed and other major central
banks begin cutting rates and/or buying bonds.
    "The Bank of Canada can really afford to be patient, but the
BOC is going to be pressured to cut rates like the other central
banks," said Alfonso Esparza, senior market analyst at Oanda in
Toronto.
    The loonie's initial gains faded with a pullback in U.S.
crude prices as U.S. offshore crude output restarted after
Hurricane Barry, and tensions between the U.S. and Iran were
seen ratcheting down.             
    U.S. crude oil futures        were 0.42% lower at $59.33 a
barrel.   

    
 (Reporting by Richard Leong
Editing by Susan Thomas)
  
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