July 17, 2018 / 1:49 PM / 3 months ago

CANADA FX DEBT-C$ falls vs U.S. dollar as risk appetite eases

    * U.S. dollar up 0.3 percent at C$1.3176 
    * Canada factory sales rose 1.4 percent in May from April
    * Spread between the U.S. Canadian 10-year yields widens
    * Canadian government bond prices higher across yield curve

    By Gertrude Chavez-Dreyfuss
    July 17 (Reuters) - The Canadian dollar slid against the
U.S. dollar on Tuesday, pressured by some modest risk aversion
ahead of U.S. Federal Reserve Chairman Jerome Powell's first
congressional testimony on the U.S. economy and monetary policy
later in the session.
    Powell is expected to repeat the Fed's stance of a gradual
monetary tightening, but analysts would be watching out for
remarks on global trade tensions and how that would impact the
pace of future U.S. rate increases.
    Data showing Canada's factory sales rose 1.4 percent in May
from April trimmed the Canadian currency's losses versus the
greenback, but that had a brief impact.             
    Still the outlook for the Canadian dollar remained negative,
analysts said, even though the Bank of Canada raised interest
rates last week for the fourth time since July 2017, as the
market has yet to fully price in the impact of global trade
tensions.
    "Domestic rate expectations have softened modestly and yield
spreads have widened in a CAD-negative manner," said Eric
Theoret, currency strategist at Scotiabank in Toronto.
    The spread between the U.S. 10-year Treasury and Canadian
10-year yields has widened to nearly 74 basis points
             .
    In early morning trading, the U.S. dollar was up 0.3 percent
at C$1.3176          against the Canadian unit. So far this
year, the Canadian dollar has been down 4.7 percent against a
strong U.S. currency.
    The Canadian dollar was also lower against the euro, which
rose 0.2 percent to C$1.5409          . Sterling, however, fell
0.3 percent to C$1.7340          .
    The U.S. dollar, meanwhile, was up 0.2 percent against a
basket of six major currencies at 94.699       .
    Meanwhile, Canadian government bond prices were higher 
across much of the yield curve in line with U.S. Treasuries.
    The two-year yield            was down at 1.915 percent,
compared with 1.929 percent late on Monday, while the 10-year
            slipped to 2.113 percent from Monday's 2.138
percent.

 (Reporting by Gertrude Chavez-Dreyfuss in New York
Editing by Nick Zieminski)
  
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