October 1, 2018 / 1:38 PM / 15 days ago

CANADA FX DEBT-C$ notches 4-month high as trade deal boosts rate hike prospects

    * Canadian dollar climbs 0.7 percent against the greenback
    * Canada reaches deal with United States to revamp NAFTA
    * Loonie touches its strongest since May 22 at 1.2788
    * Bond prices lower across the yield curve

    By Fergal Smith
    TORONTO, Oct 1 (Reuters) - The Canadian dollar strengthened
to a four-month high against its U.S. counterpart on Monday
after a last-minute deal to salvage the trilateral NAFTA trade
pact supported bets for another Bank of Canada interest rate
hike as soon as this month.
    The new United States-Mexico-Canada Agreement (USMCA)
largely leaves the broad North American Free Trade Agreement
intact and maintains current supply chains that would have been
fractured under weaker bilateral deals.                 
    "This deal, along with last week's solid run of data, all
but cements a rate hike later this month, and will likely add an
extra move next year," Robert Kavcic, a senior economist at BMO
Capital Markets said in a research note.
    The Bank of Canada has raised interest rates four times
since July 2017. Chances of another hike in October have climbed
to 84 percent from 77 percent before data on Friday showing
stronger-than-expected domestic economic growth in July.
            
    At 9:20 a.m. (1320 GMT), the Canadian dollar          was
trading 0.7 percent higher at C$1.2816 to the greenback, or
78.03 U.S. cents.
    The loonie, which posted on Friday its biggest gain in four
months, touched its strongest since May 22 at 1.2788.
    A report that Royal Dutch Shell Plc           and some
partners have approved a $31 billion liquefied natural gas
project in western Canada could also provided support for the
loonie.             
    The price of oil, one of Canada's major exports, was
supported by supply concerns before U.S. sanctions against Iran
come into force next month. U.S. crude        prices were up 0.1
percent at $73.31 a barrel.
    Canadian government bond prices were lower across the yield
curve, with the two-year            down 10.5 Canadian cents to
yield 2.274 percent and the 10-year             falling 50
Canadian cents to yield 2.487 percent.
    The 10-year yield touched its highest intraday since May 18
at 2.519 percent.             
    Canada's jobs data for September and August trade data are
due on Friday.

 (Reporting by Fergal Smith
Editing by Susan Thomas)
  
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