September 13, 2019 / 7:31 PM / 3 months ago

CANADA FX DEBT-Loonie hits 9-day low as investors brace for less dovish Fed

 (Adds strategist quotes and details throughout; updates prices)
    * Canadian dollar falls 0.5% against the greenback
    * For the week, the loonie declines 0.8%
    * Canada's household debt-to-income reaches a record 174.1%
in Q2
    * Canada's 10-year yield touches an eight-week high at
1.521%

    By Fergal Smith
    TORONTO, Sept 13 (Reuters) - The Canadian dollar weakened to
its lowest in more than one week against its U.S. counterpart on
Friday as investors guarded against the risk that the Federal
Reserve would shift next week to a less dovish stance.
    Money markets expect the Fed to cut interest rates next
Wednesday, but they have been scaling back the amount of
additional easing they see over the coming year.           
    "The U.S. dollar is in demand because the market
increasingly believes that the Federal Reserve won't cut
interest rates as much as previously thought," said Adam Button,
chief currency analyst at ForexLive. "That is reflected in
USD-CAD more than anywhere else."
    U.S. retail sales increased more than expected in August,
pointing to solid consumer spending that should continue to
support a moderate pace of economic growth.             
    At 2:57 p.m. (1857 GMT), the Canadian dollar          was
trading 0.5% lower at 1.3277 to the greenback, or 75.32 U.S.
cents. The currency, which touched its weakest intraday level
since Sept. 4 at 1.32783, was down 0.8% for the week.
    The decline for the loonie came as data from Statistics
Canada showed that the ratio of Canadian household
debt-to-income widened to a record 174.1% in the second quarter
from a downwardly revised 172.8% in the first quarter and that
the debt service ratio rose to 14.9%.             
    "That means there's now a reduced share of disposable income
left for households to spend on things other than debt
servicing," Krishen Rangasamy, a senior economist at National
Bank Financial, said in a note.
    The Bank of Canada has worried that a pick-up in housing
activity, due to lower mortgage rates in recent months, could
add to the debt burden of Canadians.
    The high debt loads and depleted savings of Canadians look
set to crimp their spending for as long as decades, economists
say.                 
    Meanwhile, the price of oil, one of Canada's major exports,
added to this week's decline on worries about slowed global
economic growth. U.S. crude oil futures        settled 0.4%
lower at $54.85 a barrel.             
    Canadian government bond prices were lower across a steeper
yield curve in sympathy with U.S. Treasuries. The two-year
           fell 6.5 Canadian cents to yield 1.641% and the
10-year             was down 64 Canadian cents to yield 1.517%.
    The 10-year yield touched its highest intraday level since
July 19 at 1.521%.

 (Reporting by Fergal Smith; Editing by Steve Orlofsky and
Cynthia Osterman)
  
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