October 24, 2019 / 8:03 PM / 18 days ago

CANADA FX DEBT-Loonie holds near 3-month high as investors bet on rate divergence

 (Adds investor quotes and details throughout; updates prices)
    * Canadian dollar trades near flat against greenback
    * Loonie posts strongest intraday level since July 22 at
1.3053
    * Price of U.S. oil increases 0.5%
    * Canadian government bond prices edge lower

    By Fergal Smith
    TORONTO, Oct 24 (Reuters) - The Canadian dollar was nearly
unchanged against the greenback on Thursday, pulling back from
an earlier three-month high as investors turned their attention
to interest rate decisions next week by the Bank of Canada and
the U.S. Federal Reserve.    
    The Bank of Canada is seen leaving its benchmark interest
rate on hold at 1.75% on Oct. 30 and over the coming months as
the domestic economy shows resilience and the election of a
minority federal government adds to prospects of increased
fiscal spending.             
    In addition, economists in a Reuters poll were divided on
whether the central bank should ease policy next year despite
widespread expectations for growth to slow.                  
    "I think expectations for a dovish Bank of Canada, or one
that's going to follow the Fed step for step in cutting rates
has dialed back," said Scott Smith, managing partner at
Viewpoint Investment Partners. "That's helping to drive the
Canadian dollar higher."
    The Fed is expected to cut interest rates next week for the
third time this year. That could lower the range for the Fed's
benchmark rate below the Bank of Canada's equivalent rate for
the first time since December 2016.
    At 3:38 p.m. (1938 GMT), the Canadian dollar          was
trading nearly unchanged at 1.3072 to the greenback, or 76.50
U.S. cents. The currency touched its strongest intraday level
since July 22 at 1.3053.
    The steady profile for the loonie came as Canada Mortgage
and Housing Corporation, the country's national housing agency,
said that the housing market is expected to recover in the next
two years after recent declines in new construction, sales and
prices.              
    U.S. Trade Representative Robert Lighthizer met this week
with Democratic lawmakers to try to resolve their concerns about
the United States-Mexico-Canada (USMCA) trade agreement as
Republicans increased pressure to get the deal passed by the end
of 2019.             
    Canada sends about 75% of its exports to the United States,
including oil.
    U.S. crude oil futures        settled 0.5% higher at $56.23
a barrel, supported by a surprise drop in U.S. crude inventories
and the prospect of further action by OPEC and its allies to
support the market.             
    Canadian government bond prices were lower across the yield
curve, with the two-year            down 2 Canadian cents to
yield 1.634% and the 10-year             falling 5 Canadian
cents to yield 1.524%.

 (Reporting by Fergal Smith
Editing by Paul Simao and Alistair Bell)
  
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