April 22, 2019 / 8:28 PM / 6 months ago

CANADA FX DEBT-Canadian dollar gains as oil climbs to near six-month high

 (Adds strategist quotes and details throughout; updates prices)
    * Canadian dollar rises 0.4% against the greenback
    * Price of U.S. oil increases 2.7%
    * Canadian bond prices trade mixed across a steeper yield
curve
    * Gap between 2- and 10-year yields hits widest since March
1 

    By Fergal Smith
    TORONTO, April 22 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Monday as oil
prices jumped to fresh multi-month highs, while investors
awaited an interest rate decision this week from the Bank of
Canada.
    The price of oil, one of Canada's major exports, rose to its
highest since October on growing concern about tight global
supplies after the United States announced a further clampdown
on Iranian oil exports. U.S. crude oil futures        settled
2.7% higher at $65.70 a barrel.             
    "We all know how correlated the Canadian dollar is with
crude oil," said Erik Bregar, head of FX strategy at the
Exchange Bank of Canada. "We are seeing the Canadian dollar
dribble higher but I would say the real party is on Wednesday." 
   
    The Bank of Canada is expected to hold its benchmark
interest rate steady at 1.75% on Wednesday and for the rest of
this year, with calls for the next hike in early 2020 resting on
a knife's edge, a Reuters poll showed.             
    "What we are telling our clients, you just have to be on
guard for something a little more cautious than the market is
expecting," Bregar said. "I feel like the market is coiling up
for a big move." 
    Earlier this month, Bank of Canada Governor Stephen Poloz
said trade uncertainties are weighing on Canada and the global
economy, which is not performing as well as had been expected
just a few months ago.             
    Last week, a Bank of Canada survey showing softer business
sentiment offset domestic data showing higher retail sales and
underlying inflation.             
    At 3:54 p.m. (1954 GMT), the Canadian dollar          was
trading up 0.4% at 1.3347 to the greenback, or 74.92 U.S. cents.
The currency, which fell 0.5% last week, traded in a range of
1.3334 to 1.3389.        
    Speculators have raised their bearish bets on the Canadian
dollar to the highest since January, data from the U.S.
Commodity Futures Trading Commission and Reuters calculations
showed on Friday. As of April 16, net short positions had
climbed to 49,162 contracts from 43,202 in the prior week.
    Canadian government bond prices were mixed across a steeper
yield curve in sympathy with U.S. Treasuries. The two-year
           gained 1 Canadian cent to yield 1.62% and the 10-year
            was down 21 Canadian cents to yield 1.788%.
    The 10-year yield rose 2.7 basis points further above the
2-year yield to a spread of 16.8 basis points, its widest since
March 1.

 (Reporting by Fergal Smith; Editing by Lisa Shumaker)
  
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