January 17, 2018 / 9:44 PM / a year ago

CANADA FX DEBT-C$ near flat in seesaw session; BoC hikes despite NAFTA cloud

 (Updates prices)
    * Canadian dollar at C$1.2427, or 80.47 U.S. cents
    * Loonie touches its strongest since Jan. 5 at C$1.2362
    * Bond prices lower across much of the yield curve
    * Canada-U.S. 2-year spread widens by 1.7 basis points

    By Fergal Smith
    TORONTO, Jan 17 (Reuters) - The Canadian dollar changed
little against the greenback in a Wednesday's seesaw session
after the Bank of Canada hiked interest rates and indicated
confidence in the outlook for the economy, but sounded a
cautious tone on the future of NAFTA.
    The central bank raised its benchmark interest rate by 25
basis points to 1.25 percent, as expected, after recent data
showed strong job growth and firmer inflation.    
    The loonie initially fell as the bank's worries on prospects
for the North American Free Trade Agreement (NAFTA) dented
expectations for additional rate increases.           
    Canada, which sends about 75 percent of its exports to the
United States, is increasingly convinced U.S. President Donald
Trump will soon announce that the United States intends to pull
out of NAFTA.
    But the "balanced tone" of a news conference with Bank of
Canada Governor Stephen Poloz and Senior Deputy Governor Carolyn
Wilkins helped the currency recover, said Eric Theoret, currency
strategist at Scotiabank.
    "They were really quick to highlight a lot of the positive
and constructive developments that made them optimistic about
the forecast and the outlook for the economy," Theoret said.
    The central bank raised its forecast for 2018 growth to 2.2
percent from 2.1 percent, while it also bumped up its forecast
for 2019, after an estimated 3.0 percent expansion in 2017.
    At 4 p.m. EST (2100 GMT), the Canadian dollar          was
trading nearly unchanged at C$1.2427 to the greenback, or 80.47
U.S. cents.
    The currency's weakest level of the session was C$1.2540,
while it touched its strongest since Jan. 5 at C$1.2362.
    The price of oil, one of Canada's major exports, rose ahead
of the release of U.S. petroleum data that was expected to show
a ninth straight weekly drawdown in crude inventories.
            
    U.S. crude oil futures        settled 0.4 percent higher at
$63.97 a barrel.
    Canadian government bond prices were lower across much of
the yield curve in sympathy with U.S. Treasuries. The two-year
           was down 2 Canadian cents to yield 1.784 percent and
the 10-year             declined 22 Canadian cents to yield
2.199 percent.
    The gap between the two-year yield and its U.S. counterpart
widened by 1.7 basis points to a spread of -26.2 basis points,
its widest since Dec. 18.

 (Reporting by Fergal Smith; Editing by Frances Kerry and Sandra
Maler)
  
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