March 21, 2018 / 9:16 PM / in 5 months

CANADA FX DEBT-C$ notches biggest gain in four months amid NAFTA optimism

 (Adds strategist quote, details on market activity; updates
prices)
    * Canadian dollar at C$1.2901, or 77.51 U.S. cents
    * Loonie touches strongest since March 13 at C$1.2890
    * Oil prices climb 2.6 percent     
    * Bond prices lower across the yield curve

    By Fergal Smith
    TORONTO, March 21 (Reuters) - The loonie posted its biggest
gain against the U.S. dollar in nearly four months on Wednesday,
buoyed by optimism about a NAFTA trade deal and higher oil
prices, while the greenback broadly fell even as the Federal
Reserve hiked interest rates.
    The U.S. dollar        extended its decline against a basket
of major currencies after Fed policy-makers signaled they
expected three interest rate increases for 2018, fewer than the
four some traders had anticipated.             
    "The Canadian dollar is strengthening in tandem with all the
G10 currencies in a weak U.S. dollar environment," said Eric
Theoret, currency strategist at Scotiabank.
    Prime Minister Justin Trudeau said he remained optimistic
Canada would get a good deal at North American Free Trade
Agreement modernization talks amid signs negotiators could be
closer to settling one of the trade pact's most contentious
issues.             
    Toronto's Globe and Mail newspaper said the U.S. side had
dropped its insistence that all autos made in NAFTA nations
should have 50 percent U.S. content.
    "It does remove some source of uncertainty," said Alvise
Marino, FX strategist at Credit Suisse in New York. "It's still
too early for the BoC to meaningfully change its view on this
front."
    The Bank of Canada has been worrying that uncertainty over
the future of NAFTA may weigh on the economy. 
    U.S. crude oil futures        settled 2.6 percent higher at
$65.17 a barrel after a surprise decline in U.S. inventories and
as concern persisted over possible disruption to Middle East
supply.             
    Oil is one of Canada's major exports.
    At 4 p.m. EST (2100 GMT), the Canadian dollar          was
trading at C$1.2901 to the greenback, or 77.51 U.S. cents, up
1.3 percent in its largest advance since Dec. 1.
    The currency touched its strongest level since March 13 at
C$1.2890.
    Canadian government bond prices were lower across the yield
curve, with the two-year            down 7.5 Canadian cents to
yield 1.867 percent and the 10-year             falling 33
Canadian cents to yield 2.255 percent.
    The 2-year yield touched its highest intraday since June
2011 at 1.909 percent.    
    Bank of Canada Senior Deputy Governor Carolyn Wilkins will
deliver a speech on Thursday, while domestic inflation data for
February is due on Friday.

 (Reporting by Fergal Smith; Editing by Bernadette Baum and
Sandra Maler)
  
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