January 7, 2019 / 9:33 PM / 7 months ago

CANADA FX DEBT-C$ hits 1-month high on bets BoC will keep neutral target

 (Adds strategist quote and details on activity; updates prices)
    * Canadian dollar rises 0.6 percent against the greenback
    * Loonie touches its strongest level since Dec. 13 at 1.3340
    * Price of U.S. oil rises 1.3 percent
    * Canadian bond prices gain across a flatter yield curve

    By Fergal Smith
    TORONTO, Jan 7 (Reuters) - The Canadian dollar strengthened
to a one-month high against its broadly weaker U.S. counterpart
on Monday, as oil prices climbed and some investors bet the Bank
of Canada will stick this week to its plan to raise interest
rates to a neutral range.
    The Bank of Canada, which has hiked five times since July
2017 to leave its benchmark interest rate at 1.75 percent, is
widely expected to refrain from further tightening on Wednesday
following recent volatility in stock markets and the price of
oil, one of Canada's major exports.           
    Still, the central bank said as recently as last month that
it will need to raise rates further to a neutral range of
between 2.50 percent and 3.50 percent to achieve its inflation
target.
    "I think there are people thinking that the bank will stick
to its guns a little bit, at least in terms of eventually
getting back to neutral, and if so that should be supportive of
the currency," said Mark Chandler, head of Canadian fixed income
and currency strategy at RBC Capital Markets.
    Domestic data showed a surprise pick-up in the pace of
purchasing activity in December. The Ivey Purchasing Managers
Index rose to 59.7 from 57.2 in November, surpassing analysts'
expectations for 56.8.             
    At 4:07 p.m. (2107 GMT), the Canadian dollar          was
trading 0.6 percent higher at 1.3296 to the greenback, or 75.21
U.S. cents. The currency, which rose nearly 2 percent last week,
touched its strongest level since Dec. 7 at 1.3280.
    Gains for the loonie came as the price of oil rebounded
further from 1-1/2-year lows reached in December, on support
from OPEC production cuts and steadying equities markets. U.S.
crude oil futures        settled 1.2 percent higher at $48.52 a
barrel.             
    Stocks advanced for a second straight session as the
resumption of U.S.-China trade talks helped ease concerns that
have pummeled the market in recent months, while the U.S. dollar
       was pressured by growing expectations the U.S. Federal
Reserve will either pause or halt its interest rate hike
cycle.                        
    Canadian government bond prices were lower across a flatter
yield curve in sympathy with U.S. Treasuries, with the two-year
           down 5 Canadian cents to yield 1.881 percent and the
10-year             falling 15 Canadian cents to yield 1.947
percent.
    Last Thursday, the 10-year yield hit its lowest since August
2017 at 1.814 percent.

 (Reporting by Fergal Smith
Editing by Alistair Bell and Tom Brown)
  
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