March 3, 2020 / 8:16 PM / 5 months ago

CANADA FX DEBT-C$ weakens as investors bet on Bank of Canada matching Fed rate cut

 (Updates prices)
    * Canadian dollar weakens 0.4% against the greenback
    * Money markets price in a 50 basis point cut from the BoC
    * Price of U.S. oil increases 0.9%
    * Canada's 10-year yield falls to a more-than three-year low

    By Fergal Smith
    TORONTO, March 3 (Reuters) - The Canadian dollar fell
against the greenback on Tuesday, giving up much of the prior
day's rally, as the Federal Reserve cut interest rates in an
emergency move that investors see the Bank of Canada matching at
a policy decision on Wednesday.
    At 2:50 p.m. (1950 GMT), the Canadian dollar          was
trading 0.4% lower at 1.3371 to the greenback, or 74.79 U.S.
cents. The currency, which on Friday hit its weakest intraday
level in nearly nine months at 1.3465, traded in a range of
1.3319 to 1.3387.
    The U.S. central bank said it was cutting rates by a half
percentage point to a target range of 1.00% to 1.25% as the
"coronavirus poses evolving risks to economic activity."
            
    The Bank of Canada had been expected by investors to cut its
benchmark interest rate, which sits at 1.75%, by 25 basis points
on Wednesday. Money markets quickly shifted gear to price in a
50 basis points move.                       
    It would be the first 50 basis points cut by the central
bank since March 2009.
    "Twenty-five basis points may prompt loonie strength and
derail the stimulus of the cut itself, while 50 basis points
could stoke a housing bubble," said Simon Harvey, FX market
analyst for Monex Europe and Monex Canada.
    "Markets are running with the fact that the latter is a less
concerning risk at the moment and are aggressively pricing a
similar 50 bps from the BoC," Harvey said.
    Canada is a major exporter of commodities, including oil, so
a slowdown in the global economy due to the coronavirus outbreak
could hurt.
    The Canadian government is open to the idea of helping firms
that are suffering from financial damage due to the outbreak of
a novel coronavirus, Prime Minister Justin Trudeau said, without
providing details.                 
    U.S. crude oil futures        settled 0.9% higher at $47.18
a barrel but shares on Wall Street lost ground in volatile trade
as investors worried that the Fed cut might not be enough to
shield the world's largest economy from the impact of the
coronavirus epidemic.             
    Canadian government bond yields tumbled across a steeper
yield curve in sympathy with U.S. Treasuries. The 10-year yield
            was down 14.9 basis points at 0.953%, its lowest
level since October 2016.

 (Reporting by Fergal Smith; Editing by Bernadette Baum and Nick
Zieminski)
  
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