January 18, 2017 / 2:16 PM / 9 months ago

CANADA FX DEBT-C$ pares recent gains ahead of Bank of Canada rate decision

* Canadian dollar at C$1.3111, or 76.27 U.S. cents
    * Bond prices lower across a steeper yield curve

    TORONTO, Jan 18 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Wednesday, paring some recent
gains ahead of a Bank of Canada  interest rate decision as oil
fell and the greenback rebounded against a basket of major
currencies.
    The U.S. dollar recovered some ground after unease
over how U.S. policy will develop under Donald Trump's
presidency drove the currency to its weakest since early
December. Data showing that U.S. inflation pressures could be
building helped boost the greenback.  
    Prices of oil, one of Canada's major exports, fell on
expectations that U.S. producers would boost output, just as
OPEC signaled that a global supply-reduction deal will shrink
the oil glut this year. 
    U.S. crude prices were down 1.60 percent at $51.64 a
barrel.
    At 8:55 a.m. ET (1355 GMT), the Canadian dollar was
trading at C$1.3111 to the greenback, or 76.27 U.S. cents,
weaker than Tuesday's close of C$1.3058, or 76.58 U.S. cents.
    The currency's strongest level of the session was C$1.3040,
while its weakest was C$1.3121.
    The loonie reached on Tuesday a nearly three-month high at 
C$1.3019, helped by recent data that showed a surge in jobs in
December and the first trade surplus in more than two years in
November, while a Bank of Canada survey last week pointed to
improving business conditions.
    The Bank of Canada is widely expected to hold interest rates
at 0.50 percent but investors will parse the central bank's
monetary policy report for any insight as to what impact the
economic policies of Trump could have on Canada.
    The rate decision and monetary policy report are due at
10:00 a.m. ET (1500 GMT).
    Nearly half of economists polled recently have pared back
their Canadian growth forecasts, with the possibility that Trump
will follow through on protectionist rhetoric clouding the
outlook. 
    Trump's nominee for commerce secretary has indicated that a
formal letter to start negotiations on NAFTA will be sent to
Canada and Mexico within days of Trump's inauguration, the Globe
and Mail reported.  
    Canadian government bond prices were lower across the yield
curve in sympathy with U.S. Treasuries. The two-year bond
 fell 2 Canadian cents to yield 0.788 percent and the
10-year declined 27 Canadian cents to yield 1.7
percent.
    The curve steepened, as the spread between the 2-year and
10-year yields widened by 2.2 basis points to 91.2 basis points,
indicating underperformance for longer-dated maturities.       

 (Reporting by Fergal Smith; Editing by Nick Zieminski)

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