August 1, 2018 / 1:30 PM / 3 months ago

CANADA FX DEBT-C$ little changed before Fed decision as investors eye trade risk

    * Canadian dollar at C$1.3005, or 76.89 U.S. cents
    * Price of U.S. oil falls 1.5 percent
    * Bond prices lower across a steeper yield curve
    * 10-year yield hits highest in more than two months

    TORONTO, Aug 1 (Reuters) - The Canadian dollar was little
changed against its U.S. counterpart on Wednesday as the
currency held onto recent gains ahead of a Federal Reserve
interest rate decision, despite the potential for escalated
global trade tensions.
    A source said the White House was about to propose higher
tariffs on $200 billion in Chinese imports, perhaps sparking a
new round of trade hostilities.             
    Canada runs a current account deficit, so its economy could
be hurt if the flow of trade or capital slows. The country has
its own trade feud with the United States and is also in talks
with the U.S. and Mexico to revamp the North American Free Trade
Agreement.
     Mexican negotiators are optimistic about the possibility of
getting a NAFTA deal and are hopeful of progress in coming days,
the country's deputy economy minister said ahead of a second
ministerial meeting in Washington later this week.             
    The Federal Reserve is expected to keep interest rates
unchanged but solid economic growth combined with rising
inflation are likely keep it on track for another two hikes this
year.             
    At 9:11 a.m. EDT (1311 GMT), the Canadian dollar         ,
which rose 1 percent in July, was trading near flat at C$1.3005
to the greenback, or 76.89 U.S. cents. The currency traded in a
narrow range of C$1.3000 to C$1.3034. 
    On Wednesday, the loonie touched its strongest in nearly
seven weeks at C$1.2985 after data showing
stronger-than-expected growth in the domestic economy boosted
bets for another Bank of Canada interest rate hike this year.
                      
    The price of oil, one of Canada's major exports, was
pressured by an industry report that U.S. stockpiles of crude
rose unexpectedly and by higher OPEC production. U.S. crude oil
futures        were down 1.5 percent at $67.71 a
barrel.            
    Canadian government bond prices were lower across a steeper
yield curve in sympathy with U.S. Treasuries after the U.S.
government said it intends to increase its borrowing from the
bond market in the coming quarter to fund its spending and debt
obligations.             
    The two-year            fell 3.5 Canadian cents to yield
2.087 percent and the 10-year             declined 40 Canadian
cents to yield 2.357 percent. The 10-year yield touched its
highest intraday since May 25 at 2.361 percent.

 (Reporting by Fergal Smith; Editing by Bernadette Baum)
  
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