January 22, 2020 / 9:50 PM / a month ago

CANADA FX DEBT-Canadian dollar hits near 4-week low as rate cut bets climb

 (Adds economist quote and details throughout; updates prices)
    * Canadian dollar falls 0.5% against the greenback
    * Bank of Canada leaves benchmark rate at 1.75%
    * Canada inflation rate holds steady at 2.2% in December
    * Canadian bond prices rally across the yield curve

    By Fergal Smith
    TORONTO, Jan 22 (Reuters) - The Canadian dollar weakened to
a near four-week low against the greenback on Wednesday after
dovish comments by the Bank of Canada in a policy announcement
prompted investors to raise bets on interest rate cuts in the
coming months.
    The central bank maintained its key overnight interest rate
at 1.75% as expected but opened the door to a possible cut
should a recent slowdown in Canadian economic growth drag on.
            
    "The spotlight is on the data," said Ryan Brecht, a senior
economist at Action Economics. "Weaker than expected growth or a
sustained slowing in inflation could prompt a rate cut."
    Chances of an interest rate cut at the central bank's next
rate decision on March 4 jumped to 20% from less than 5% before
the policy decision, money market data showed.           
    Earlier in the day, data from Statistics Canada showed that
Canada's annual inflation rate held steady at 2.2% in December,
close to the Bank of Canada's 2% target, and wholesale trade
fell for the third time in five months in November, declining
1.2%.                         
    At 4:21 p.m. (2121 GMT), the Canadian dollar          was
trading 0.5% lower at 1.3138 to the greenback, or 76.12 U.S.
cents, its biggest decline since Dec. 6. The currency, which
climbed 5% in 2019, touched its weakest intraday level since
Dec. 26 at 1.3152.    
    The decline for the loonie came as the price of oil, one of
Canada's major exports, was pressured by a market surplus
forecast by the International Energy Agency (IEA), as well as
demand worries after the outbreak of a virus in China. U.S.
crude oil futures        settled 2.8% lower at $56.74 a barrel. 
    Canadian government bond prices were higher across the yield
curve, with the two-year            up 15.5 Canadian cents to
yield 1.544% and the 10-year             rising 60 Canadian
cents to yield 1.450%.
    The gap between Canada's two-year yield and its U.S.
equivalent narrowed by 7.2 basis points to a spread of 1.8 basis
points in favor of the Canadian bond.

 (Reporting by Fergal Smith; Editing by David Gregorio and Peter
Cooney)
  
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