June 3, 2019 / 8:40 PM / 5 months ago

CANADA FX DEBT-C$ rallies to six-day high as investors dump the greenback

 (Adds dealer quotes and details throughout; updates prices)
    * Canadian dollar rises 0.6% against the greenback
    * Price of U.S. oil falls 0.5%
    * Canada-U.S. 2-year spread hits its narrowest since April
2018
    * Canada's 10-year yield hits a two-year low at 1.423%

    By Fergal Smith
    TORONTO, June 3 (Reuters) - The Canadian dollar strengthened
to a nearly one-week high against its U.S. counterpart on Monday
as rising expectations of a Federal Reserve interest rate cut
this year weighed on the greenback. 
    The U.S. dollar        tumbled against a basket of major
currencies after St. Louis Federal Reserve President James
Bullard said an interest rate cut "may be warranted soon," given
the rising economic risk posed by global trade tensions as well
as weak U.S. inflation.             
    "It's a broader move on the U.S. dollar following these
comments," said Simon Côté, managing director, risk management
solutions at National Bank Financial. "The market is getting
what it was waiting for, a reason to take some profit, sell some
(U.S.) dollars."
    The gap between Canada's 2-year yield and its U.S.
equivalent narrowed by 4.2 basis points to a spread of 47.2
basis points in favor of the U.S. bond, its narrowest gap since
April 2018.
    The narrower spread comes after the Bank of Canada said last
week there was increasing evidence that a slowdown in the
domestic economy was temporary, as it left its benchmark
interest rate unchanged at 1.75%.             
    "I think the Bank of Canada will be in more of a wait and
see mood instead of aggressively cutting rates to follow the
Fed," Côté said.             
    The downturn in Canada's manufacturing sector deepened in
May as the depressed state of global trade led to a further
decline in production.             
    At 4:07 p.m. (2007 GMT), the Canadian dollar          was
trading 0.6% higher at 1.3441 to the greenback, or 74.40 U.S.
cents. The currency, which fell in May for the fourth straight
month, touched its strongest level since last Tuesday at 1.3435.
    The price of oil, one of Canada's major exports, fell as
U.S. trade disputes with Mexico and China deepened concerns
about weakening global crude demand. U.S. crude oil futures
       settled 0.5% lower at $53.25 a barrel.             
    Mexico and Canada said on Friday they would proceed with
plans to ratify a new continental trade pact despite a threat
from U.S. President Donald Trump to impose tariffs on Mexico
unless a surge of illegal immigrants ceased.                    
    Canadian government bond prices were higher across the yield
curve on Monday in sympathy with U.S. Treasuries. The two-year
           rose 11.5 Canadian cents to yield 1.368% and the
10-year             gained 61 Canadian cents to yield 1.425%.
    The 10-year yield hit its lowest since June 2017 at 1.423%.

 (Reporting by Fergal Smith; Editing by Tom Brown)
  
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