July 19, 2017 / 8:40 PM / in 2 months

CANADA FX DEBT-C$ adds to 14-month high as factory data raises pressure on shorts

 (Adds portfolio manager quotes and details throughout; updates
prices)
    * Canadian dollar at C$1.2593, or 79.41 U.S. cents
    * Loonie touches its strongest since May 2016 at C$1.2578
    * Bond prices lower across the yield curve
    * Canada-U.S. 2-year spread hits narrowest since Aug. 18

    By Fergal Smith
    TORONTO, July 19 (Reuters) - The Canadian dollar
strengthened on Wednesday to a new 14-month high against its
U.S. counterpart as a record level of domestic factory sales and
higher oil prices added to pressure on investors who had got
short the currency.
    At 4 p.m. EDT (2000 GMT), the Canadian dollar          was
trading at C$1.2593 to the greenback, or 79.41 U.S. cents, up
0.3 percent.
    The loonie touched its strongest level since early May 2016
at C$1.2578. It has rallied roughly 7 percent since the Bank of
Canada turned more hawkish in June. The central bank raised
interest rates last week for the first time since 2010 and
signaled it would hike again over the coming months.
    "What you are seeing in FX markets is not about anybody
necessarily getting bullish on the Canadian dollar but simply
unwinding short CAD positions," said Aubrey Basdeo, head of
Canadian Fixed Income at BlackRock.
    "It was just such a one-sided trade that it's a painful way
to get out of that market at this time."
    Speculators have cut bearish bets on the loonie for a
seventh straight week, data from the U.S. Commodity Futures
Trading Commission and Reuters calculations showed on Friday.
Bearish bets had reached a record high in May.  
    Canadian factory sales grew by 1.1 percent in May from
April, on higher sales of motor vehicles and parts. Analysts had
forecast an increase of 0.8 percent.             
    The data shows that "the goods sector is delivering the
goods for the Canadian economy," Avery Shenfeld, chief economist
at CIBC Capital Markets, said in a research note.    
    Prices of oil, one of Canada's major exports, jumped to a
six-week high after bullish U.S. inventory data.             
    U.S. crude        oil futures settled 1.6 percent higher at
$47.12 a barrel.
    U.S., Mexican and Canadian officials have agreed to an
aggressive timetable to renegotiate the North American Free
Trade Agreement (NAFTA), sources said, aiming to conclude early
next year to avoid Mexico's 2018 presidential elections.
            
    Canadian government bond prices were lower across the yield
curve, with the two-year            down 6 Canadian cents to
yield 1.228 percent and the 10-year             falling 30
Canadian cents to yield 1.894 percent.
    The gap between Canada's 2-year yield and its U.S.
equivalent narrowed by 3.1 basis points to a spread of -13.2
basis points, its narrowest since Aug. 18.
    Potential for the Federal Reserve to pause its rate hikes
has contributed to the narrower spread, BlackRock's Basdeo said.

 (Reporting by Fergal Smith; Editing by Meredith Mazzilli and
Sandra Maler)
  
 

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