December 18, 2019 / 8:21 PM / in 6 months

CANADA FX DEBT-Canadian dollar notches 7-week high as core inflation rises

 (Adds details on activity and updates prices)
    * Canadian dollar rises 0.3% against the greenback
    * Canada's annual inflation rate rises to 2.2%
    * Canadian bond prices fall across a steeper yield curve

    By Fergal Smith
    TORONTO, Dec 18 (Reuters) - The Canadian dollar strengthened
to a seven-week high against its U.S. counterpart on Wednesday
after data showing a pickup in underlying inflation tempered
bets that the Bank of Canada would cut interest rates over the
coming months.
    Canada's annual inflation rate rose 2.2% as expected in
November on the back of higher energy prices, while the average
of the Bank of Canada's three measures of core inflation rose to
2.2% from 2.1%, data from Statistics Canada showed.             
    "It does make for a more challenging environment to follow
some of the other central banks in easing," said Robert Both, a
macro strategist at TD Securities.
    The Bank of Canada has left its policy rate unchanged at
1.75% this year despite easing by the Federal Reserve and the
European Central Bank. Chances of an interest rate cut by the
end of 2020 fell to less than 20% from about 25% before the
data, the overnight index swaps market indicated.           
    Separate data showed that Canadian home prices rose in
November, which is often a slow month for the market. The
Teranet-National Bank Composite House Price Index rose 0.2% last
month from October.               
    At 2:54 p.m. (1954 GMT), the Canadian dollar          was
trading 0.3% higher at 1.3113 to the greenback, or 76.26 U.S.
cents. The currency posted its strongest intraday level since
Oct. 30 at 1.3103.
    Over the past week, the loonie has been supported by the
Federal Reserve's benign inflation outlook              and by a
trade deal between the United States and China. Canada is a
major exporter of commodities, including oil, so its economy
could benefit from an improved outlook for global trade.
    U.S. crude oil futures        held near a three-month high
as U.S. government data showed a decline in crude inventories
and on expectations for an uptick in demand next year on the
back of progress in resolving the U.S.-China trade fight.
            
    Canadian government bond prices were lower across a steeper
yield curve, with the two-year            down 6 Canadian cents
to yield 1.737% and the 10-year             falling 68 Canadian
cents to yield 1.710%.
    The 10-year yield touched its highest intraday level since
May 22 at 1.719%.

 (Reporting by Fergal Smith; Editing by Steve Orlofsky and Peter
Cooney)
  
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