November 4, 2016 / 8:42 PM / in a year

CANADA FX DEBT-C$ down in volatile trade as oil, election weigh

(Adds comment)
    * Canadian dollar settles at C$1.3403, or 74.61 U.S. cents
    * Loonie touched weakest since March at C$1.3466 during
session
    * Bond prices higher across the yield curve

    By Alastair Sharp
    TORONTO, Nov 4 (Reuters) - The Canadian dollar slipped
against its U.S. counterpart on Friday, after hitting an
eight-month low in volatile trade as investors worried about
next week's U.S. election, lower oil prices and potential
interest rate divergence.
    Strong U.S. hiring in October could effectively seal the
case for a December interest rate increase from the Federal
Reserve, while Canada's reliance on new part-time positions for
job growth suggests the Bank of Canada will remain cautious.
  
    The loonie, as Canada's currency is colloquially known, hit
its weakest level since March at C$1.3466, or 74.26 U.S. cents, 
before recovering somewhat to settle at C$1.3403, or 74.61 U.S.
cents. It closed on Thursday at C$1.3383, or 74.72 U.S. cents.
    "It's a very volatile, jittery market, and the big elephant
is going to be the election next Tuesday," said Hosen Marjaee, a
senior managing director for Canadian fixed income at Manulife
Asset Management. 
    The battle between Democrat Hillary Clinton and Republican
Donald Trump has tightened significantly in the past week, as
several swing states that were leaning toward Clinton are now
considered toss-ups. 
    "From a Canadian dollar perspective, the fear is that if
Trump gets in, he may, as he has promised or talked about,
renege on some of the trade agreements which have been helpful
to us," Marjaee said.
    Marjaee said concern a proposed deal to limit oil production
may unravel also weighed on the currency of Canada, a major oil
producer.
    Oil futures fell this week by the most since January as
signs of tensions resurfaced between Saudi Arabia and Iran that
could scupper the key supply cut pact. 
    Canada posted a record trade deficit of C$4.1 billion in
September, but the figure was boosted by the one-off import of
machinery for an oil project. 
    "The lackluster trend in exports suggest that we are still
going to need a cheap Canadian dollar for a long time plus a
cheaper-still Canadian dollar going forward," said Nick Exarhos,
economist at CIBC Capital Markets.
    Speculators raised bearish bets on the Canadian dollar to
the most since March, Commodity Futures Trading Commission data
showed. Net short Canadian dollar positions rose to 15,960
contracts in the week ended Nov 1 from 13,324 in the prior week.
    Canadian government bond prices were higher across the yield
curve, with the two-year price up 5 Canadian cents to
yield 0.523 percent and the benchmark 10-year rising
35 Canadian cents to yield 1.116 percent.

 (Additional reporting by Fergal Smith; Editing by Jonathan
Oatis)

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