May 14, 2019 / 8:13 PM / 11 days ago

CANADA FX DEBT-C$ gets lift from oil rally as investors await inflation data

 (Adds strategist quotes and details throughout; updates prices)
    * Canadian dollar rises 0.1% against the greenback
    * Price of U.S. oil increases 1.2%
    * Canadian home prices fail to rise for eighth straight
month
    * Canada-U.S. 2-year spread hits narrowest since November

    By Fergal Smith
    TORONTO, May 14 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Tuesday as oil prices rose and
investors grew more optimistic on U.S.-China trade talks, but
the currency stuck to a narrow range ahead of Canada's inflation
report on Wednesday.
    U.S. stocks reclaimed ground lost to Monday's steep sell-off
as investors took heart from a tonal shift in ongoing U.S. trade
negotiations with China.             
    Canada runs a current account deficit and exports many
commodities, including oil, so its economy could be hurt by a
slowdown in the global flow of capital or trade.
    Oil prices rose after top exporter Saudi Arabia said
explosive-laden drones launched by a Yemeni armed movement
aligned with Iran had attacked facilities belonging to state oil
company Aramco. U.S. crude oil futures        settled 1.2%
higher at $61.78 a barrel.             
    "I think the slight uplift in oil today has helped (the
loonie)," said Amo Sahota, director at Klarity FX in San
Francisco. "What I think is more significant when focusing just
on the loonie is how will Canadian inflation come out tomorrow?"
    Canada's inflation report for April is due on Wednesday,
which could help guide expectations for Bank of Canada interest
rate policy. Money market see a nearly 40% chance of a rate cut
by the end of the year.           
    Domestic data on Tuesday showed that home prices failed to
rise for the eighth consecutive month in April.             
    At 3:54 p.m. (1954 GMT), the Canadian dollar          was
trading 0.1% higher at 1.3466 to the greenback, or 74.26 U.S.
cents. The currency, which has advanced 1.3% since the start of
the year, traded in a narrow range of 1.3457 to 1.3488.
    Canadian Prime Minister Justin Trudeau's strategy to
prioritize spending on the middle class at the beginning of his
four-year term will not keep growth humming ahead of a general
election in October, some economists said.             
    Canadian government bond prices were lower across a steeper
yield curve, with the two-year            down 4.5 Canadian
cents to yield 1.607% and the 10-year             falling 30
Canadian cents to yield 1.697%.    
    The gap between Canada's 2-year yield and its U.S.
equivalent narrowed by 0.9 basis points to a spread of 60 basis
points in favor of the U.S. bond, its narrowest gap since Nov.
28.

 (Reporting by Fergal Smith; editing by Jonathan Oatis and
Sandra Maler)
  
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