February 19, 2020 / 8:41 PM / 3 months ago

CANADA FX DEBT-Canadian dollar gains as oil rallies on Chinese stimulus hopes

 (Adds strategist quotes and details throughout; updates prices)
    * Canadian dollar rises 0.2% against the greenback
    * Canada's annual inflation rate rises to 2.4% in January 
    * Price of U.S. oil increases 2.4%
    * Canadian bond yields rise across a steeper yield curve

    By Fergal Smith
    TORONTO, Feb 19 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Wednesday as hopes that China
would stimulate its economy helped boost the price of oil, one
of Canada's major exports, and domestic data showed inflation
climbed in January.
    At 3:16 p.m. (2016 GMT), the Canadian dollar          was
trading 0.2% higher at 1.3225 to the greenback, or 75.61 U.S.
cents. The currency traded in a range of 1.3216 to 1.3265.
    Gains for the Canadian dollar "can be broadly linked to the
rally in oil markets," said Simon Harvey, FX market analyst for
Monex Europe and Monex Canada. "Today's WTI price action
highlights that markets have become less concerned with the
deteriorating demand conditions due to the coronavirus and are
instead finding relief in potential supply constraints."
    U.S. crude oil futures        settled 2.4% higher at $53.29
a barrel, while stocks globally          gained ground as
speculation that China would take more measures to prop up its
economy eased worries about the impact of the coronavirus
outbreak.             
    Canada's annual inflation rate rose to 2.4% in January on
higher gasoline prices, Statistics Canada said. Some analysts
suggested the data may pose a challenge for the Bank of Canada
should it wish to ease rates, although the average of three key
measures of underlying inflation dipped to 2%, the central
bank's target.             
    "While the upward surprise in headline CPI helped the loonie
to rally initially, the details of the inflation report looked
less promising," Harvey said.
    Chances of an interest rate cut in April fell to about 40%
from nearly 50% before the data, the overnight index swaps
market indicated.           
     Demonstrators opposed to a Canadian energy project started
blocking a western rail line, adding to pressure on Prime
Minister Justin Trudeau to resolve a two-week protest that is
harming the economy.                  
    Canadian bond yields rose across a steeper yield curve, with
the 10-year yield             up 2.3 basis points at 1.352%.

 (Reporting by Fergal Smith; Editing by David Gregorio and
Bernadette Baum)
  
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