July 10, 2019 / 8:33 PM / a year ago

CANADA FX DEBT-Loonie climbs as BoC policy outlook diverges from the Fed

 (Adds strategist quotes and details throughout; updates prices)
    * Canadian dollar rises 0.4% against the greenback
    * Bank of Canada leaves its policy rate on hold at 1.75%
    * Price of U.S. oil increases 4.5%
    * Canada's yield curve steepens 

    By Fergal Smith
    TORONTO, July 10 (Reuters) - The Canadian dollar
strengthened against its broadly weaker U.S. counterpart on
Wednesday, moving closer to last week's eight-month high, as the
Bank of Canada showed no sign that it would match potential
interest rate cuts from the U.S. Federal Reserve. 
    The Bank of Canada left its benchmark interest rate on hold
at 1.75% as expected and made clear it had no intention of
easing monetary policy, while highlighting the risks trade wars
posed to the global economy.             
    Meanwhile, Fed Chairman Jerome Powell reinforced
expectations the U.S. central bank will cut interest rates for
the first time in a decade at its next monetary policy meeting
later this month, saying trade uncertainties and concerns about
the global outlook continued to exert pressure on the American
    It's a "contrasting story of central bank prospects," said
Shaun Osborne, chief currency strategist at Scotiabank. "It
seems quite possible that we are going to get a pretty
meaningful series of interest rate reductions from the Fed going
forward here, and the Bank of Canada, in contrast, is suggesting
that to a large extent it is going to sit this one out."
    While chances of an interest rate cut this year by the Bank
of Canada rose to 35% from 20% before the interest rate
announcement, that fell well short of expected tightening over
the same period by the Fed. Investors see at least two Fed rate
hikes by December.                     
    At 4:21 p.m. (2021 GMT), the Canadian dollar          was
trading 0.4% higher at 1.3080 to the greenback, or 76.45 U.S.
cents. The currency, which last Thursday touched an eight-month
high at 1.3038, traded in a range of 1.3063 to 1.3145.
    Adding to support for the loonie, the price of oil, one of
Canada's major exports, was boosted by data showing U.S. crude
inventories shrank and as major producers cut nearly a third of
offshore Gulf of Mexico production ahead of an expected storm.
U.S. crude oil futures        settled up 4.5% at $60.43 a
    Canada's yield curve steepened in sympathy with the U.S.
curve. The two-year            rose 10.5 Canadian cents to yield
1.583% and the 10-year             was flat to yield 1.584%.

 (Reporting by Fergal Smith; editing by David Gregorio,
Bernadette Baum and Jonathan Oatis)
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