December 11, 2018 / 8:43 PM / a year ago

CANADA FX DEBT-C$ firms as market weighs trade and political signals

 (Adds strategist quotes and details on activity; updates
prices)
    * Canadian dollar rises 0.1 percent against the greenback
    * Price of U.S. oil rises 1.3 percent
    * Canadian bond prices fall across the yield curve
    * Canada-U.S. 10-year spread reaches its widest since May
2017

    By Fergal Smith
    TORONTO, Dec 11 (Reuters) - The Canadian dollar edged higher
against its U.S. counterpart on Tuesday as oil prices rose, but
mixed signals for the market from the trade and political
spheres helped keep the currency near a 1-1/2-year low it hit
last week.
    The S&P 500 gave up some gains after U.S. President Donald
Trump's threat to shut down the government over funding for a
border wall undid the boost to markets from optimism over
China-U.S. trade talks.             
    "The market has been whipped around by trade uncertainty and
the overall equity moves today," said Erik Nelson, a currency
strategist at Wells Fargo. It's "not terribly surprising to see
CAD follow suit."
    Canada is a major exporter of commodities, including oil,
and runs a current account deficit, so its economy could benefit
from an improved outlook for the global flow of trade or
capital. 
    The price of oil also pared some of its gains amid worries
of a possible U.S. government shutdown. Still, crude oil futures
      , which fell sharply the day before, settled 1.3 percent
higher at $51.65 a barrel.            
    At 3:03 p.m. (2003 GMT), the Canadian dollar          was up
0.1 percent at 1.3394 to the greenback, or 74.66 U.S. cents. The
currency traded in a range of 1.3379 to 1.3423.
    Last Thursday, the loonie touched its weakest level in
nearly 18 months at 1.3445 after the Bank of Canada suggested
the pace of future interest rate hikes could be more gradual.
            
    Speculators have added to their bearish bets on the Canadian
dollar for the fourth straight week, data from the U.S.
Commodity Futures Trading Commission and Reuters calculations
showed on Monday. As of Dec. 4, net short positions had
increased to 12,936 contracts from 8,630 a week earlier.
            
    Canadian government bond prices were lower across the yield
curve, with the 10-year             falling 15 Canadian cents to
yield 2.077 percent.
    The gap between Canada's 10-year yield and its U.S.
equivalent widened by 1.2 basis points to a spread of 80.8 basis
points in favor of the U.S. bond, its widest since May 2017.

 (Reporting by Fergal Smith; Editing by Peter Cooney)
  
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