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CANADA FX DEBT-C$ weakens as prospects dim on rate hike
September 29, 2017 / 9:46 PM / 2 months ago

CANADA FX DEBT-C$ weakens as prospects dim on rate hike

    * Canadian dollar at C$1.2478, or 80.14 U.S. cents
    * Data shows no growth in Canada's July GDP
    * Bond prices higher across the yield curve
    * Canada-U.S. 2-year spread narrows by 6 basis points

    By Solarina Ho and Fergal Smith
    TORONTO, Sept 29 (Reuters) - The Canadian dollar weakened
against the greenback on Friday after domestic data showed the
economy stalled in July, further dampening prospects of a
another interest rate hike by the Bank of Canada next month.
    Speculators have raised bullish bets on the loonie to the
highest since November 2012, data from the U.S. Commodity
Futures Trading Commission and Reuters calculations showed. As
of Sept. 26, Canadian dollar net long positions had climbed to
74,605 contracts from 58,846 a week earlier.
    "I think those longs are wrong, and they're going to be
caught wrong, and that's one of the reasons why maybe we've seen
USD/CAD spike up so much this week," said Amo Sahota, director
at Klarity FX in San Francisco.
    Canada's economy was unchanged in July following eight
consecutive months of growth, including a 0.3 percent increase
in June, Statistics Canada said.
    "We think that's going to be echoed through the balance of
Q3," said Sahota, adding that he was glad to see the Bank of
Canada ease up on its "hawkish rhetoric".
    The economic data did not justify a 10 percent rally by the
loonie, he said.
    The central bank raised rates in July and September after
the country's growth accelerated in the first half of the year,
but a speech by Bank of Canada Governor Stephen Poloz and Deputy
Governor Tim Lane have helped talk down the Canadian dollar in
recent weeks after the currency's strength put growth at risk.
            
    Chances of another increase next month edged lower after
Friday's data, to around 20 percent, the overnight index swaps
market indicated.            
    At 4:00 p.m. EDT (2000 GMT), the Canadian dollar         
was down 0.4 percent at C$1.2478 to the greenback, or 80.14 U.S.
cents. The loonie has weakened 3 percent since its peak this
month.
    The currency traded in a range between $1.2417 and C$1.2531.
On Thursday it touched a four-week low at C$1.2519.
    Canadian government bond prices were higher across the yield
curve, with the two-year            price up 4.5 Canadian cents
to yield 1.518 percent and the benchmark 10-year            
rising 27 Canadian cents to yield 2.097 percent.
    The gap between the two-year yield and its U.S. equivalent
narrowed by 6 basis points to a spread of 2.7 basis points.
Earlier this month the spread reached its widest since January
2015 at 24.8 basis points.

 (Reporting by Fergal Smith and Solarina Ho; Editing by David
Gregorio)
  
 

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