October 23, 2019 / 7:33 PM / 9 months ago

CANADA FX DEBT-Loonie nears 3-month high as investors eye further rate divergence

 (Adds investor quotes and details throughout; updates prices)
    * Canadian dollar rises 0.1% against the greenback
    * Canadian wholesale trade declines 1.2% in August
    * Price of U.S. oil increases 2.7%
    * Canada's 10-year yield hits a one-week low at 1.484%

    By Fergal Smith
    TORONTO, Oct 23 (Reuters) - The Canadian dollar rose against
the greenback on Wednesday, approaching a three-month high it
notched the previous day, as investors expected further
divergence in the interest rate policies of the Bank of Canada
and the Federal Reserve.
    Canada's central bank, which is due to make an interest rate
decision on Oct. 30, has kept its benchmark rate on hold at
1.75% this year, as the domestic economy added jobs at a robust
pace and inflation stayed close to its 2% target.
    "I think the focus is now more on the Bank of Canada versus
the Fed approach to interest rates," said Hosen Marjaee, senior
portfolio manager at Manulife Asset Management. "It seems like
the Bank of Canada is going to be steady in the month of October
but the Fed is going to cut rates, most likely."
    Money markets expect the Federal Reserve to ease U.S. rates
next week for the third time since July. That could lower the
range for the Fed's benchmark rate below the equivalent rate for
the Bank of Canada of 1.75%.
    Investors are ditching bets that Canada's central bank will
cut interest rates over the coming months, as the domestic
economy shows resilience and the federal election result adds to
prospects of growth-boosting fiscal spending next year.
    Canadian Liberal Prime Minister Justin Trudeau said a
middle-class tax cut would be the first order of business for
his new minority government, which would seek support in
parliament on a case-by-case basis.             
    At 3 p.m. (1900 GMT), the Canadian dollar          was
trading 0.1% higher at 1.3075 to the greenback, or 76.48 U.S.
cents. The currency, which hit a three-month high on Tuesday at
1.3071, traded in a range of 1.3073 TO 1.3109.
    Gains for the loonie came as the price of oil, one of
Canada's major exports, was boosted by data showing a surprise
draw in U.S. crude stock. U.S. crude oil futures        settled
2.7% higher at $55.97 a barrel.             
    Data from Statistics Canada showed a surprise drop for
Canadian wholesale trade in August from July, down 1.2%.
Analysts had forecast a 0.3% increase.             
    Canadian government bond prices were higher across the yield
curve, with the two-year            up 2 Canadian cents to yield
1.615% and the 10-year             rising 9 Canadian cents to
yield 1.510%.    
    The 10-year yield hit its lowest intraday level since Oct.
15 at 1.484%.

 (Reporting by Fergal Smith; Editing by David Gregorio and Peter
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